Primeserv Group (JSE:PMV) Could Be A Buy For Its Upcoming Dividend

Primeserv Group Limited (JSE:PMV) stock is about to trade ex-dividend in 3 days. Investors can purchase shares before the 20th of January in order to be eligible for this dividend, which will be paid on the 25th of January.

Primeserv Group's next dividend payment will be R0.015 per share, on the back of last year when the company paid a total of R0.03 to shareholders. Based on the last year's worth of payments, Primeserv Group has a trailing yield of 3.8% on the current stock price of ZAR0.8. 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 Primeserv Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Primeserv Group

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. Primeserv Group has a low and conservative payout ratio of just 12% of its income after tax. 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. Luckily it paid out just 12% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Primeserv Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Primeserv Group's earnings per share have risen 14% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Primeserv Group's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

Should investors buy Primeserv Group for the upcoming dividend? Primeserv Group has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Primeserv Group, and we would prioritise taking a closer look at it.

In light of that, while Primeserv Group has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 3 warning signs for Primeserv Group (1 can't be ignored!) that you ought to be aware of before buying the shares.

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.

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