Pitney Bowes Inc. (NYSE:PBI) Passed Our Checks, And It's About To Pay A US$0.07 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Pitney Bowes Inc. (NYSE:PBI) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Pitney Bowes investors that purchase the stock on or after the 19th of May will not receive the dividend, which will be paid on the 6th of June.

The company's next dividend payment will be US$0.07 per share, and in the last 12 months, the company paid a total of US$0.28 per share. Looking at the last 12 months of distributions, Pitney Bowes has a trailing yield of approximately 2.9% on its current stock price of US$9.56. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

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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. Pitney Bowes paid out a comfortable 36% of its profit last year. 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 25% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Pitney Bowes's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Pitney Bowes

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Pitney Bowes's earnings have been skyrocketing, up 21% per annum for the past five years. Pitney Bowes is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Pitney Bowes has seen its dividend decline 9.4% per annum on average over the past 10 years, which is not great to see. Pitney Bowes is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is Pitney Bowes worth buying for its dividend? Pitney Bowes has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Pitney Bowes for the dividends alone, you should always be mindful of the risks involved. We've identified 3 warning signs with Pitney Bowes (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.