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The board of Premier, Inc. (NASDAQ:PINC) has announced that it will pay a dividend on the 15th of December, with investors receiving $0.21 per share. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.
View our latest analysis for Premier
Premier's Future Dividend Projections Appear Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Premier was paying out 80% of earnings, but a comparatively small 38% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Earnings per share is forecast to rise by 2.8% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.
Premier Is Still Building Its Track Record
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2020, the dividend has gone from $0.76 total annually to $0.84. This means that it has been growing its distributions at 2.5% per annum over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
Premier Might Find It Hard To Grow Its Dividend
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Premier has been growing its earnings per share at 36% a year over the past five years. However, Premier isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Premier's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Premier you should be aware of, and 1 of them is potentially serious. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.