Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that PUMA SE (ETR:PUM) is about to go ex-dividend in just 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase PUMA's shares on or after the 12th of May, you won't be eligible to receive the dividend, when it is paid on the 16th of May.
The company's next dividend payment will be €0.72 per share. Last year, in total, the company distributed €0.72 to shareholders. Looking at the last 12 months of distributions, PUMA has a trailing yield of approximately 1.1% on its current stock price of €66.34. If you buy this business for its dividend, you should have an idea of whether PUMA's dividend is reliable and sustainable. So we need to investigate whether PUMA can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see PUMA paying out a modest 33% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 9.3% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see PUMA's earnings have been skyrocketing, up 39% per annum for the past five years. PUMA is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, PUMA has lifted its dividend by approximately 14% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid PUMA? It's great that PUMA is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. PUMA looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while PUMA looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for PUMA you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.