Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that P&F Industries, Inc. (NASDAQ:PFIN) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 21st of February to receive the dividend, which will be paid on the 28th of February.
P&F Industries’s upcoming dividend is US$0.05 a share, following on from the last 12 months, when the company distributed a total of US$0.20 per share to shareholders. Based on the last year’s worth of payments, P&F Industries has a trailing yield of 2.8% on the current stock price of $7.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. P&F Industries is paying out just 12% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. P&F Industries paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, P&F Industries’s earnings per share have been growing at 15% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. It looks like the P&F Industries dividends are largely the same as they were four years ago.
The Bottom Line
Is P&F Industries an attractive dividend stock, or better left on the shelf? We’re glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it’s not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Keen to explore more data on P&F Industries’s financial performance? Check out our visualisation of its historical revenue and earnings growth.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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