Four Days Left To Buy Perenti Limited (ASX:PRN) Before The Ex-Dividend Date
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Perenti Limited (ASX:PRN) is about to go ex-dividend in just four days. The ex-dividend date generally occurs two days 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Perenti's shares before the 13th of October to receive the dividend, which will be paid on the 28th of October.
The company's next dividend payment will be AU$0.045 per share, on the back of last year when the company paid a total of AU$0.077 to shareholders. Based on the last year's worth of payments, Perenti has a trailing yield of 3.5% on the current stock price of AU$2.24. 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 check whether the dividend payments are covered, and if earnings are growing.
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. It paid out 89% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Perenti generated enough free cash flow to afford its dividend. Over the last year it paid out 74% of its free cash flow as dividends, within the usual range for most companies.
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.
Check out our latest analysis for Perenti
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Perenti has grown its earnings rapidly, up 26% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Perenti has delivered an average of 6.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Perenti? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Perenti's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 89% and 74% respectively. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
In light of that, while Perenti has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Perenti has 3 warning signs we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.