Why It Might Not Make Sense To Buy P10, Inc. (NYSE:PX) For Its Upcoming Dividend

Readers hoping to buy P10, Inc. (NYSE:PX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Accordingly, P10 investors that purchase the stock on or after the 28th of November will not receive the dividend, which will be paid on the 19th of December.

The company's next dividend payment will be US$0.0375 per share. Last year, in total, the company distributed US$0.15 to shareholders. Based on the last year's worth of payments, P10 stock has a trailing yield of around 1.7% on the current share price of US$9.09. 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! So we need to investigate whether P10 can afford its dividend, and if the dividend could grow.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year P10 paid out 101% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

See our latest analysis for P10

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by P10's 6.1% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. P10 has delivered an average of 5.7% per year annual increase in its dividend, based on the past four years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. P10 is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is P10 worth buying for its dividend? Not only are earnings per share shrinking, but P10 is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in P10 and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 5 warning signs for P10 (2 are significant!) that you ought to be aware of before buying the shares.

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.