We Wouldn't Be Too Quick To Buy Pitney Bowes Inc. (NYSE:PBI) Before It Goes Ex-Dividend

By
Simply Wall St
Published
November 10, 2021
NYSE:PBI
Source: Shutterstock

It looks like Pitney Bowes Inc. (NYSE:PBI) is about to go ex-dividend in the next 3 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 Pitney Bowes' shares before the 15th of November in order to be eligible for the dividend, which will be paid on the 7th of December.

The company's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.20 per share. Calculating the last year's worth of payments shows that Pitney Bowes has a trailing yield of 2.6% on the current share price of $7.62. If you buy this business for its dividend, you should have an idea of whether Pitney Bowes's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Pitney Bowes

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. Pitney Bowes distributed an unsustainably high 191% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Pitney Bowes generated enough free cash flow to afford its dividend. Luckily it paid out just 21% of its free cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Pitney Bowes fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:PBI Historic Dividend November 11th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Pitney Bowes's earnings per share have plummeted approximately 45% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Pitney Bowes has seen its dividend decline 18% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Is Pitney Bowes worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 191% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Pitney Bowes's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Pitney Bowes don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 3 warning signs for Pitney Bowes (1 is a bit concerning!) that you ought to be aware of before buying the 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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