Pason Systems (TSE:PSI) Will Pay A Larger Dividend Than Last Year At CA$0.12

The board of Pason Systems Inc. (TSE:PSI) has announced that it will be paying its dividend of CA$0.12 on the 31st of December, an increased payment from last year's comparable dividend. This will take the annual payment to 3.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Pason Systems

Pason Systems' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Pason Systems was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 16.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was CA$0.44, compared to the most recent full-year payment of CA$0.48. Dividend payments have been growing, but very slowly over the period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Pason Systems has been growing its earnings per share at 62% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Pason Systems Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Pason Systems that investors should take into consideration. Is Pason Systems not quite the opportunity you were looking for? Why not check out 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.