Pason Systems (TSE:PSI) Has Affirmed Its Dividend Of CA$0.05

The board of Pason Systems Inc. (TSE:PSI) has announced that it will pay a dividend of CA$0.05 per share on the 29th of September. The dividend yield will be 2.4% based on this payment which is still above the industry average.

See our latest analysis for Pason Systems

Pason Systems' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was higher than its profits, and made up 93% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 47%, which is in a comfortable range for us.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from CA$0.34 in 2011 to the most recent annual payment of CA$0.20. Doing the maths, this is a decline of about 5.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Pason Systems has impressed us by growing EPS at 32% per year over the past five years. EPS has been growing well, but Pason Systems has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means Pason Systems has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Pason Systems that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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