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Propel Funeral Partners Limited (ASX:PFP) is set to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the latest date by which shareholders must be present on the books of the company to be eligible for payment of a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. So you can buy shares of Propel Funeral Partners before March 4 in order to receive the dividend, which the company will pay on April 7.
The company’s next dividend payment will be AU$0.06 per share. Last year, in total, the company distributed AU$0.12 to shareholders. Total dividend payouts from last year show that Propel Funeral Partners has a yield of 2.7% on the current share price of AU$4.39. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. Therefore, readers should always check whether Propel Funeral Partners was able to increase its dividend or if the dividend could be reduced.
Check out our latest analysis for Propel Funeral Partners
Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Propel Funeral Partners paid a dividend last year despite not being profitable. It may be a one-time event, but it is not a long-term sustainable situation. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Propel Funeral Partners did not generate enough cash to pay the dividend, it must have paid either from cash in the bank or by borrowing money, which is not sustainable in the long term. It paid out 100% of its free cash flow as dividends last year, which is outside the comfort zone for most companies. Businesses generally need cash more than revenue – expenses don’t pay for themselves – so it’s not great to see them paying so much out of their cash flow.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. Propel Funeral Partners was not profitable last year, but at least the general trend suggests that its earnings have improved over the past five years. Even so, an unprofitable company that does not recover quickly is generally not a good candidate for dividend investors.
Propel Funeral Partners has also issued more than 5% of its market capitalization in new shares over the past year, which we believe may hurt its long-term dividend outlook. Trying to increase the dividend while issuing large amounts of new stock reminds us of the ancient Greek story of Sisyphus – perpetually pushing a rock upwards.
Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Propel Funeral Partners has achieved an average annual increase of 16% per year in its dividend, based on the last four years of dividend payments. It’s exciting to see that earnings and dividends per share have grown rapidly over the past few years.
Remember, you can always get an overview of Propel Funeral Partners’ financial health by viewing our financial health visualization here.
Last takeaway
Should investors buy Propel Funeral Partners for the upcoming dividend? We are a little uncomfortable with the fact that it is paying a dividend while being loss-making, especially since the dividend has not been well covered by free cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably pass this one up for now.
That being said, if you still consider Propel Funeral Partners as an investment, you will find it useful to know what risks this stock faces. Example: we have identified 2 warning signs for Propel Funeral Partners you should be aware.
If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
