PDS' (NSE:PDSL) Upcoming Dividend Will Be Larger Than Last Year's

The board of PDS Limited (NSE:PDSL) has announced that it will be paying its dividend of ₹3.15 on the 25th of August, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 0.9%, providing a nice boost to shareholder returns.

See our latest analysis for PDS

PDS' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, PDS' dividend was only 43% of earnings, however it was paying out 273% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 137.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

PDS' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 3 years was ₹3.15 in 2021, and the most recent fiscal year payment was ₹4.75. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that PDS has grown earnings per share at 27% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think PDS is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for PDS that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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