Pick n Pay Stores Limited (JSE:PIK) Will Pay A R1.92 Dividend In Four Days

Pick n Pay Stores Limited (JSE:PIK) stock is about to trade ex-dividend in four days. You will need to purchase shares before the 2nd of December to receive the dividend, which will be paid on the 7th of December.

Pick n Pay Stores's next dividend payment will be R1.92 per share. Last year, in total, the company distributed R2.16 to shareholders. Based on the last year's worth of payments, Pick n Pay Stores stock has a trailing yield of around 4.1% on the current share price of ZAR52.33. If you buy this business for its dividend, you should have an idea of whether Pick n Pay Stores's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Pick n Pay Stores

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. Pick n Pay Stores paid out 95% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 5.3% of its free cash flow as dividends last year, which is conservatively low.

It's good to see that while Pick n Pay Stores's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Pick n Pay Stores earnings per share are up 2.5% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Pick n Pay Stores has lifted its dividend by approximately 2.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy Pick n Pay Stores for the upcoming dividend? Pick n Pay Stores has been steadily growing its earnings per share, and it is paying out just 5.3% of its cash flow but an uncomfortably high 95% of its income. All things considered, we are not particularly enthused about Pick n Pay Stores from a dividend perspective.

However if you're still interested in Pick n Pay Stores as a potential investment, you should definitely consider some of the risks involved with Pick n Pay Stores. Every company has risks, and we've spotted 3 warning signs for Pick n Pay Stores (of which 1 doesn't sit too well with us!) you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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