Do These 3 Checks Before Buying Power Corporation of Canada (TSE:POW) For Its Upcoming Dividend

Power Corporation of Canada (TSE:POW) is about to trade ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 30th of December will not receive this dividend, which will be paid on the 1st of February.

Power Corporation of Canada's next dividend payment will be CA$0.45 per share, on the back of last year when the company paid a total of CA$1.79 to shareholders. Based on the last year's worth of payments, Power Corporation of Canada stock has a trailing yield of around 6.1% on the current share price of CA$29.39. If you buy this business for its dividend, you should have an idea of whether Power Corporation of Canada's dividend is reliable and sustainable. So we need to investigate whether Power Corporation of Canada can afford its dividend, and if the dividend could grow.

View our latest analysis for Power Corporation of Canada

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Power Corporation of Canada paid out 66% of its earnings to investors last year, a normal payout level for most businesses.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Power Corporation of Canada's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Power Corporation of Canada has lifted its dividend by approximately 4.4% a year on average.

The Bottom Line

Has Power Corporation of Canada got what it takes to maintain its dividend payments? Power Corporation of Canada's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Although, if you're still interested in Power Corporation of Canada and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 2 warning signs we've spotted with Power Corporation of Canada (including 1 which is a bit unpleasant).

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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