Yahoo Finance Don't Race Out To Buy PCTEL, Inc. (NASDAQ:PCTI) Just Because It's Going Ex-Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PCTEL, Inc. (NASDAQ:PCTI) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase PCTEL's shares on or after the 5th of May will not receive the dividend, which will be paid on the 15th of May.
The company's upcoming dividend is US$0.055 a share, following on from the last 12 months, when the company distributed a total of US$0.22 per share to shareholders. Last year's total dividend payments show that PCTEL has a trailing yield of 4.6% on the current share price of $4.76. If you buy this business for its dividend, you should have an idea of whether PCTEL's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for PCTEL
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PCTEL paid out 139% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. PCTEL paid out more free cash flow than it generated - 122%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
PCTEL does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Cash is slightly more important than profit from a dividend perspective, but given PCTEL's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see how much of its profit PCTEL paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. PCTEL's earnings per share have fallen at approximately 8.6% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. PCTEL has delivered an average of 6.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. PCTEL is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
To Sum It Up
Is PCTEL worth buying for its dividend? Not only are earnings per share declining, but PCTEL is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. Bottom line: PCTEL has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of PCTEL don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 4 warning signs for PCTEL that we strongly recommend you have a look at before investing in the company.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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