Could Patel Integrated Logistics Limited (NSE:PATINTLOG) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
A 0.4% yield is nothing to get excited about, but investors probably think the long payment history suggests Patel Integrated Logistics has some staying power. Some simple analysis can reduce the risk of holding Patel Integrated Logistics for its dividend, and we’ll focus on the most important aspects below.
Explore this interactive chart for our latest analysis on Patel Integrated Logistics!
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Patel Integrated Logistics paid out 16% of its profit as dividends, over the trailing twelve month period. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Patel Integrated Logistics paid out 93% of its free cash flow last year, which we think is concerning if cash flows do not improve. Patel Integrated Logistics paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough free cash flow to cover the dividend. Cash is king, as they say, and were Patel Integrated Logistics to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
Remember, you can always get a snapshot of Patel Integrated Logistics’ latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Patel Integrated Logistics has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was ₹1.0 in 2010, compared to ₹0.1 last year. This works out to a decline of approximately 90% over that time.
We struggle to make a case for buying Patel Integrated Logistics for its dividend, given that payments have shrunk over the past 10 years.
Dividend Growth Potential
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Patel Integrated Logistics’ EPS have fallen by approximately 31% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Patel Integrated Logistics’ earnings per share, which support the dividend, have been anything but stable.
Conclusion
To summarise, shareholders should always check that Patel Integrated Logistics’ dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we like Patel Integrated Logistics’ low dividend payout ratio, although we’re a bit concerned that it paid out a substantially higher percentage of its free cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, Patel Integrated Logistics has a number of shortcomings that we’d find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we’ve come accross 5 warning signs for Patel Integrated Logistics you should be aware of, and 3 of them can’t be ignored.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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This article by Simply Wall St is general in nature. 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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