PGG Wrightson's (NZSE:PGW) Shareholders Will Receive A Smaller Dividend Than Last Year

PGG Wrightson Limited's (NZSE:PGW) dividend is being reduced from last year's payment covering the same period to NZ$0.1176 on the 3rd of October. Despite the cut, the dividend yield of 5.5% will still be comparable to other companies in the industry.

See our latest analysis for PGG Wrightson

PGG Wrightson Doesn't Earn Enough To Cover Its Payments

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, PGG Wrightson's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 199% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Earnings per share is forecast to rise by 0.4% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 105%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was NZ$0.10, compared to the most recent full-year payment of NZ$0.22. This means that it has been growing its distributions at 8.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. PGG Wrightson might have put its house in order since then, but we remain cautious.

PGG Wrightson's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. PGG Wrightson has impressed us by growing EPS at 17% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

PGG Wrightson's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for PGG Wrightson that investors should know about before committing capital to this stock. 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.