Preformed Line Products Company (NASDAQ:PLPC) Goes Ex-Dividend Soon
It looks like Preformed Line Products Company (NASDAQ:PLPC) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 30th of September will not receive the dividend, which will be paid on the 20th of October.
Preformed Line Products's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.80 to shareholders. Based on the last year's worth of payments, Preformed Line Products stock has a trailing yield of around 1.7% on the current share price of $47.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Preformed Line Products
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Preformed Line Products is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out an unsustainably high 331% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Preformed Line Products intends to continue funding this dividend, or if it could be forced to the payment.
While Preformed Line Products's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Preformed Line Products to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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. Fortunately for readers, Preformed Line Products's earnings per share have been growing at 18% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Preformed Line Products's dividend payments are effectively flat on where they were 10 years ago.
Final Takeaway
Should investors buy Preformed Line Products for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's hard to get excited about Preformed Line Products from a dividend perspective.
While it's tempting to invest in Preformed Line Products for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Preformed Line Products you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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