Do These 3 Checks Before Buying PGG Wrightson Limited (NZSE:PGW) For Its Upcoming Dividend
PGG Wrightson Limited (NZSE:PGW) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase PGG Wrightson's shares on or after the 8th of September will not receive the dividend, which will be paid on the 3rd of October.
The company's next dividend payment will be NZ$0.19 per share. Last year, in total, the company distributed NZ$0.30 to shareholders. Based on the last year's worth of payments, PGG Wrightson stock has a trailing yield of around 6.4% on the current share price of NZ$4.68. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether PGG Wrightson can afford its dividend, and if the dividend could grow.
View our latest analysis for PGG Wrightson
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, PGG Wrightson paid out 93% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 157% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given PGG Wrightson's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see how much of its profit PGG Wrightson paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by PGG Wrightson's 12% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past nine years, PGG Wrightson has increased its dividend at approximately 13% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. PGG Wrightson is already paying out 93% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Has PGG Wrightson got what it takes to maintain its dividend payments? Not only are earnings per share declining, but PGG Wrightson is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not that we think PGG Wrightson is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in PGG Wrightson and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 1 warning sign for PGG Wrightson that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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