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The Property Franchise Group PLC (LON:TPFG) will pay a dividend of £0.06 on the 4th of October. This takes the annual payment to 2.5% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for Property Franchise Group
Estimates Indicate Property Franchise Group's Could Struggle to Maintain Dividend Payments In The Future
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Property Franchise Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
The next 12 months is set to see EPS grow by 30.1%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 108% over the next year.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was £0.026, compared to the most recent full-year payment of £0.12. This means that it has been growing its distributions at 17% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Property Franchise Group May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Property Franchise Group's EPS has declined at around 2.2% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
An additional note is that the company has been raising capital by issuing stock equal to 96% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Property Franchise Group's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.