Is It Worth Considering PG p.l.c. (MTSE:PG) For Its Upcoming Dividend?

PG p.l.c. (MTSE:PG) stock is about to trade ex-dividend in day or so. You will need to purchase shares before the 2nd of December to receive the dividend, which will be paid on the 10th of December.

PG's next dividend payment will be €0.019 per share, on the back of last year when the company paid a total of €0.062 to shareholders. Looking at the last 12 months of distributions, PG has a trailing yield of approximately 3.3% on its current stock price of €1.89. If you buy this business for its dividend, you should have an idea of whether PG's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for PG

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. PG paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

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

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see PG earnings per share are up 7.4% per annum over the last five years. Decent historical earnings per share growth suggests PG has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past three years, PG has increased its dividend at approximately 8.3% 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

Is PG worth buying for its dividend? Earnings per share growth has been modest and PG paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, it's hard to get excited about PG from a dividend perspective.

On that note, you'll want to research what risks PG is facing. Our analysis shows 3 warning signs for PG and you should be aware of these before buying any shares.

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.

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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. 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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