Pzena Investment Management (NYSE:PZN) Is Paying Out A Larger Dividend Than Last Year

Pzena Investment Management, Inc (NYSE:PZN) has announced that it will be increasing its dividend on the 25th of February to US$0.53. This takes the dividend yield from 6.3% to 6.3%, which shareholders will be pleased with.

View our latest analysis for Pzena Investment Management

Pzena Investment Management Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Pzena Investment Management was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 23.9% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 338%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from US$0.12 to US$0.62. This means that it has been growing its distributions at 18% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Pzena Investment Management's earnings per share has shrunk at 24% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Pzena Investment Management's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Pzena Investment Management (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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