In This Article:
It looks like PZ Cussons Plc (LON:PZC) is about to go ex-dividend in the next 2 days. Investors can purchase shares before the 8th of October in order to be eligible for this dividend, which will be paid on the 3rd of December.
PZ Cussons's next dividend payment will be UK£0.031 per share, on the back of last year when the company paid a total of UK£0.058 to shareholders. Last year's total dividend payments show that PZ Cussons has a trailing yield of 2.4% on the current share price of £2.38. 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 PZ Cussons
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year PZ Cussons paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while PZ Cussons's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. PZ Cussons's earnings per share have fallen at approximately 15% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PZ Cussons's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.