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Readers hoping to buy Phibro Animal Health Corporation (NASDAQ:PAHC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 3rd of September to receive the dividend, which will be paid on the 25th of September.
Phibro Animal Health's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.48 to shareholders. Last year's total dividend payments show that Phibro Animal Health has a trailing yield of 2.2% on the current share price of $21.74. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Phibro Animal Health has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Phibro Animal Health
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Phibro Animal Health's payout ratio is modest, at just 32% of profit. A useful secondary check can be to evaluate whether Phibro Animal Health generated enough free cash flow to afford its dividend. The company paid out 108% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While Phibro Animal Health's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Phibro Animal Health to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Phibro Animal Health's earnings per share have risen 14% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.