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PCTEL, Inc. (NASDAQ:PCTI) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase PCTEL's shares on or after the 5th of November will not receive the dividend, which will be paid on the 15th of November.
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 3.8% on the current share price of $5.76. If you buy this business for its dividend, you should have an idea of whether PCTEL's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PCTEL paid out 192% 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. A useful secondary check can be to evaluate whether PCTEL generated enough free cash flow to afford its dividend. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and PCTEL fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see PCTEL has grown its earnings rapidly, up 43% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. PCTEL has delivered an average of 6.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Has PCTEL got what it takes to maintain its dividend payments? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. In summary, it's hard to get excited about PCTEL from a dividend perspective.
With that being said, if dividends aren't your biggest concern with PCTEL, you should know about the other risks facing this business. Every company has risks, and we've spotted 2 warning signs for PCTEL 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. 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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