We Wouldn't Be Too Quick To Buy Pactiv Evergreen Inc. (NASDAQ:PTVE) Before It Goes Ex-Dividend

Pactiv Evergreen Inc. (NASDAQ:PTVE) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Pactiv Evergreen investors that purchase the stock on or after the 30th of August will not receive the dividend, which will be paid on the 13th of September.

The company's next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$0.40 per share. Last year's total dividend payments show that Pactiv Evergreen has a trailing yield of 3.5% on the current share price of US$11.52. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Pactiv Evergreen can afford its dividend, and if the dividend could grow.

See our latest analysis for Pactiv Evergreen

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Pactiv Evergreen paid out 98% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Pactiv Evergreen generated enough free cash flow to afford its dividend. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Pactiv Evergreen's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Pactiv Evergreen's earnings are down 2.5% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Pactiv Evergreen's dividend payments are effectively flat on where they were four years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

The Bottom Line

Has Pactiv Evergreen got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. Worse, Pactiv Evergreen's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Pactiv Evergreen and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 3 warning signs for Pactiv Evergreen (1 can't be ignored) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.