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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 Preformed Line Products Company (NASDAQ:PLPC) is about to go ex-dividend in just 3 days. You can purchase shares before the 30th of September in order to receive the dividend, which the company will pay on the 18th of October.
Preformed Line Products's next dividend payment will be US$0.2 per share, on the back of last year when the company paid a total of US$0.8 to shareholders. Last year's total dividend payments show that Preformed Line Products has a trailing yield of 1.4% on the current share price of $56.25. 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.
See our latest analysis for Preformed Line Products
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Preformed Line Products paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Preformed Line Products generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (82%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
Click here to see how much of its profit Preformed Line Products paid out over the last 12 months.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Preformed Line Products, with earnings per share up 4.5% on average over the last five years. A payout ratio of 17% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Preformed Line Products's dividend payments are broadly unchanged compared to where they were ten years ago.