Stock Analysis

Yellow Pages Limited (TSE:Y) Goes Ex-Dividend Soon

TSX:Y
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Readers hoping to buy Yellow Pages Limited (TSE:Y) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 25th of November in order to receive the dividend, which the company will pay on the 15th of December.

Yellow Pages's upcoming dividend is CA$0.11 a share, following on from the last 12 months, when the company distributed a total of CA$0.44 per share to shareholders. Based on the last year's worth of payments, Yellow Pages stock has a trailing yield of around 3.5% on the current share price of CA$12.48. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out 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 has a low and conservative payout ratio of just 9.0% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 5.0% of its free cash flow 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.

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TSX:Y Historic Dividend November 20th 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Yellow Pages's earnings per share have fallen at approximately 12% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Given that Yellow Pages has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Should investors buy Yellow Pages for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 2 warning signs for Yellow Pages you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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