Pentair plc (NYSE: PNR) is set to trade off-dividend within the next four days. The ex-dividend date is generally set at one working day before the registration date which is the deadline by which you must be present in the books of the company as a shareholder to receive the dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. As a result, Pentair investors who purchase the shares on or after July 22 will not receive the dividend, which will be paid on August 6.
The company’s next dividend will be US $ 0.20 per share, and over the past 12 months, the company has paid a total of US $ 0.80 per share. Last year’s total dividend payouts show Pentair has a rolling 1.2% return on the current share price of $ 69.09. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. You have to see if the dividend is covered by profits and if it increases.
See our latest review for Pentair
Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, then the dividend could be unsustainable. That’s why it’s good to see Pentair donate a modest 31% of its profits. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we always need to check if the dividend is covered by the cash flow. The good news is that she has only paid out 19% of her free cash flow in the past year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If business goes into recession and the dividend is reduced, the business could experience a sharp drop in value. With that in mind, we are encouraged by the continued growth of Pentair, with earnings per share rising 2.6% on average over the past five years. Recent growth has not been impressive. However, companies that see their growth slowing can often choose to pay a higher percentage of their profits to shareholders, which could see the dividend continue to rise.
Most investors primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Over the past 10 years, Pentair has increased its dividend by approximately 0.5% per year on average.
The bottom line
Does Pentair have what it takes to maintain its dividend payments? Earnings per share growth has increased somewhat, and Pentair pays less than half of its earnings and cash flow as dividends. This is interesting for several reasons, as it suggests that management may be reinvesting heavily in the company, but it also helps to increase the dividend over time. It might be nice to see earnings grow faster, but Pentair is careful with its dividend payouts and could still perform reasonably well over the long term. Pentair looks strong on this analysis overall, and we would certainly consider taking a closer look.
Although it is tempting to invest in Pentair purely for dividends, you should always be aware of the risks involved. In terms of investment risks, we have identified 1 warning sign with Pentair and understanding them should be part of your investment process.
If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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