Here's Why We're Wary Of Buying Pzena Investment Management's (NYSE:PZN) For Its Upcoming Dividend

Pzena Investment Management, Inc (NYSE:PZN) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 11th of February will not receive this dividend, which will be paid on the 25th of February.

Pzena Investment Management's next dividend payment will be US$0.25 per share, on the back of last year when the company paid a total of US$0.34 to shareholders. Last year's total dividend payments show that Pzena Investment Management has a trailing yield of 3.7% on the current share price of $9.18. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Pzena Investment Management

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. Pzena Investment Management paid out 66% of its earnings to investors last year, a normal payout level for most businesses.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit Pzena Investment Management paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Pzena Investment Management's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Pzena Investment Management has lifted its dividend by approximately 11% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Pzena Investment Management? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that being said, if you're still considering Pzena Investment Management as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 3 warning signs for Pzena Investment Management (of which 1 can't be ignored!) you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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.
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