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Dividend Investors: Don't Be Too Quick To Buy PSC Insurance Group Limited (ASX:PSI) For Its Upcoming Dividend

PSC Insurance Group Limited (ASX:PSI) stock is about to trade ex-dividend in 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Meaning, you will need to purchase PSC Insurance Group's shares before the 13th of September to receive the dividend, which will be paid on the 12th of October.

The company's next dividend payment will be AU$0.075 per share. Last year, in total, the company distributed AU$0.12 to shareholders. Based on the last year's worth of payments, PSC Insurance Group stock has a trailing yield of around 2.4% on the current share price of A$4.96. If you buy this business for its dividend, you should have an idea of whether PSC Insurance Group's dividend is reliable and sustainable. As a result, readers should always check whether PSC Insurance Group has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for PSC Insurance Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. PSC Insurance Group paid out 149% 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.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that PSC Insurance Group's earnings are down 2.9% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. PSC Insurance Group has delivered 26% dividend growth per year on average over the past seven years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. PSC Insurance Group is already paying out 149% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Is PSC Insurance Group an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and PSC Insurance Group is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in PSC Insurance Group and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 3 warning signs for PSC Insurance Group that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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