There's A Lot To Like About Yellow Pages' (TSE:Y) Upcoming CA$0.15 Dividend

By
Simply Wall St
Published
February 19, 2022
TSX:Y
Source: Shutterstock

It looks like Yellow Pages Limited (TSE:Y) is about to go ex-dividend in the next four 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. This means that investors who purchase Yellow Pages' shares on or after the 24th of February will not receive the dividend, which will be paid on the 15th of March.

The company's next dividend payment will be CA$0.15 per share. Last year, in total, the company distributed CA$0.60 to shareholders. Based on the last year's worth of payments, Yellow Pages stock has a trailing yield of around 4.2% on the current share price of CA$14.21. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Yellow Pages

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Yellow Pages is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Yellow Pages generated enough free cash flow to afford its dividend. The good news is it paid out just 15% of its free cash flow in the last year.

It's positive to see that Yellow Pages'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 the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
TSX:Y Historic Dividend February 19th 2022

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Yellow Pages's earnings have been skyrocketing, up 61% per annum for the past five years. Yellow Pages looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last two years, Yellow Pages has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Yellow Pages for the upcoming dividend? We love that Yellow Pages is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Yellow Pages, and we would prioritise taking a closer look at it.

While it's tempting to invest in Yellow Pages for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Yellow Pages you should be aware of.

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

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.