Prosegur Compañía de Seguridad, S.A. (BME:PSG) is about to trade ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 9th of January will not receive the dividend, which will be paid on the 13th of January.
Prosegur Compañía de Seguridad’s next dividend payment will be €0.027 per share, and in the last 12 months, the company paid a total of €0.13 per share. Last year’s total dividend payments show that Prosegur Compañía de Seguridad has a trailing yield of 3.4% on the current share price of €3.748. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Prosegur Compañía de Seguridad can afford its dividend, and if the dividend could grow.
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. Last year Prosegur Compañía de Seguridad paid out 101% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Prosegur Compañía de Seguridad paid out more free cash flow than it generated – 128%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.
Cash is slightly more important than profit from a dividend perspective, but given Prosegur Compañía de Seguridad’s payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we’re concerned to see Prosegur Compañía de Seguridad’s earnings per share have dropped 14% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Prosegur Compañía de Seguridad has lifted its dividend by approximately 21% a year on average. That’s intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Prosegur Compañía de Seguridad is already paying out 101% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.
Should investors buy Prosegur Compañía de Seguridad for the upcoming dividend? Not only are earnings per share declining, but Prosegur Compañía de Seguridad is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.
Wondering what the future holds for Prosegur Compañía de Seguridad? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.