Stock Analysis

Yellow Pages' (TSE:Y) Dividend Will Be CA$0.15

TSX:Y
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Yellow Pages Limited's (TSE:Y) investors are due to receive a payment of CA$0.15 per share on 15th of December. This means the annual payment is 4.5% of the current stock price, which is above the average for the industry.

Our analysis indicates that Y is potentially undervalued!

Yellow Pages' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Yellow Pages' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 66.2% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 8.1% by next year, which is in a pretty sustainable range.

historic-dividend
TSX:Y Historic Dividend November 13th 2022

Yellow Pages Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2019, the annual payment back then was CA$0.44, compared to the most recent full-year payment of CA$0.60. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Yellow Pages has impressed us by growing EPS at 66% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Yellow Pages' Dividend

Overall, we like to see the dividend staying consistent, and we think Yellow Pages might even raise payments in the future. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Yellow Pages that investors should take into consideration. Is Yellow Pages 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.