Pulse Seismic Inc. (TSE:PSD) Looks Interesting, And It's About To Pay A Dividend

Pulse Seismic Inc. (TSE:PSD) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Pulse Seismic's shares before the 29th of February to receive the dividend, which will be paid on the 11th of March.

The company's next dividend payment will be CA$0.01375 per share. Last year, in total, the company distributed CA$0.055 to shareholders. Based on the last year's worth of payments, Pulse Seismic stock has a trailing yield of around 2.7% on the current share price of CA$2.05. If you buy this business for its dividend, you should have an idea of whether Pulse Seismic's dividend is reliable and sustainable. As a result, readers should always check whether Pulse Seismic has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Pulse Seismic

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Pulse Seismic paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Pulse Seismic's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Pulse Seismic paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Pulse Seismic's earnings have been skyrocketing, up 36% per annum for the past five years. Pulse Seismic is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Pulse Seismic has seen its dividend decline 3.7% per annum on average over the past 10 years, which is not great to see. Pulse Seismic is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is Pulse Seismic an attractive dividend stock, or better left on the shelf? Pulse Seismic has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Pulse Seismic looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Pulse Seismic has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Pulse Seismic you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.