Stock Analysis

Don't Buy Polyram Plastic Industries LTD (TLV:POLP) For Its Next Dividend Without Doing These Checks

Source: Shutterstock

Polyram Plastic Industries LTD (TLV:POLP) is about to trade ex-dividend in the next three 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 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. In other words, investors can purchase Polyram Plastic Industries' shares before the 21st of March in order to be eligible for the dividend, which will be paid on the 3rd of April.

The company's upcoming dividend is ₪0.11 a share, following on from the last 12 months, when the company distributed a total of ₪0.38 per share to shareholders. Based on the last year's worth of payments, Polyram Plastic Industries stock has a trailing yield of around 4.4% on the current share price of ₪8.621. If you buy this business for its dividend, you should have an idea of whether Polyram Plastic Industries's dividend is reliable and sustainable. As a result, readers should always check whether Polyram Plastic Industries has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Polyram Plastic Industries

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. Last year Polyram Plastic Industries paid out 100% 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. Over the past year it paid out 124% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Polyram Plastic Industries's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Polyram Plastic Industries paid out over the last 12 months.

TASE:POLP Historic Dividend March 17th 2023

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Polyram Plastic Industries, with earnings per share up 5.3% on average over the last five years. Earnings per share have been growing comfortably, although unfortunately the company is paying out more of its profits than we're comfortable with over the long term.

We'd also point out that Polyram Plastic Industries issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, two years ago, Polyram Plastic Industries has lifted its dividend by approximately 37% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Polyram Plastic Industries got what it takes to maintain its dividend payments? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. Bottom line: Polyram Plastic Industries has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Polyram Plastic Industries. Be aware that Polyram Plastic Industries is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Polyram Plastic Industries is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis