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Pinnacle West Capital Corporation (NYSE:PNW) has pleased shareholders over the past 10 years, by paying out dividends. The company currently pays out a dividend yield of 3.5% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Pinnacle West Capital should have a place in your portfolio.
See our latest analysis for Pinnacle West Capital
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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Is its annual yield among the top 25% of dividend-paying companies?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has the amount of dividend per share grown over the past?
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Can it afford to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Pinnacle West Capital fit our criteria?
The current trailing twelve-month payout ratio for the stock is 61%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 63% which, assuming the share price stays the same, leads to a dividend yield of around 3.6%. Moreover, EPS should increase to $4.74.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. PNW has increased its DPS from $2.1 to $2.95 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Pinnacle West Capital produces a yield of 3.5%, which is on the low-side for Electric Utilities stocks.
Next Steps:
With these dividend metrics in mind, I definitely rank Pinnacle West Capital as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three relevant aspects you should further examine: