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Petrolina (Holdings) Public Ltd (CSE: PHL) will increase its dividend on October 26 to € 0.025. The dividend yield is therefore 6.4%, which is higher than the industry average.
See our latest analysis for Petrolina (Holdings)
Petrolina (Holdings) does not earn enough to cover its payments
We like to see robust dividend yields, but it doesn’t matter if the payout isn’t sustainable. Prior to this announcement, Petrolina’s (Holdings) dividend exceeded earnings, but free cash flow covered it fairly comfortably. Healthy cash flows are always a positive sign, especially when they easily cover the dividend.
Going forward, EPS could drop 15.3% if the company fails to raise the bar from recent years. If the dividend continues on the same path as it has recently been, the 12 month payout ratio could be 209%, which is certainly a bit high to be sustainable going forward.
Dividend volatility
The history of the company’s dividends has been marked by instability, with at least one decline in the past 10 years. Since 2011, the first annual payment was € 0.051, compared to the last annual payment of € 0.042. This represents a decrease of about 1.9% per year during this period. A business that decreases its dividend over time is usually not what we are looking for.
The dividend has limited growth potential
Growth in earnings per share could be a mitigating factor considering past dividend fluctuations. Petrolina (Holdings) EPS has fallen by around 15% per year over the past five years. A sharp drop in earnings per share isn’t terrible from a dividend standpoint. Even conservative payout ratios can be put under pressure if earnings fall enough.
The dividend could prove to be unreliable
Overall, it’s probably not a high-income stock, although the dividend is being increased. Payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flow, it could prove to be reliable in the short term. We don’t think Petrolina (Holdings) is a great stock to add to your portfolio if income is your goal.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing the performance of stocks. Concrete example: we have spotted 3 warning signs for Petrolina (Holdings) (2 of which make us uncomfortable!) to know. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. 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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