Readers hoping to buy Parkland Corporation (TSE:PKI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 21st of October in order to receive the dividend, which the company will pay on the 13th of November.
Parkland's next dividend payment will be CA$0.10 per share, on the back of last year when the company paid a total of CA$1.21 to shareholders. Based on the last year's worth of payments, Parkland stock has a trailing yield of around 3.3% on the current share price of CA$37.22. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Parkland
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Parkland distributed an unsustainably high 116% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Parkland generated enough free cash flow to afford its dividend. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Parkland fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Parkland, with earnings per share up 9.4% on average 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. Parkland's dividend payments are broadly unchanged compared to where they were 10 years ago.
To Sum It Up
Should investors buy Parkland for the upcoming dividend? Earnings per share have grown modestly, and last year Parkland paid out a low percentage of its cash flow. However, its dividend payments were not well covered by profits. All things considered, we are not particularly enthused about Parkland from a dividend perspective.
However if you're still interested in Parkland as a potential investment, you should definitely consider some of the risks involved with Parkland. To help with this, we've discovered 4 warning signs for Parkland (1 can't be ignored!) that you ought to be aware of before buying the shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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