Many investors in the stock market are always in search of solid dividend income. Sometimes the stocks that have the highest yields operate in the most boring industries. Today’s stock selection is no exception. This company will not make the headlines on CNBC or Bloomberg anytime soon. The company does however have a great yield that is north of over 6%. Should this company make your list of must buy dividend stocks?
The company in question is Pitney Bowes (PBI).
Pitney Bowes Dividend
Pitney Bowes is a midcap company that provides mail processing services and equipment around the world. Pitney Bowes sells postage meters, machines, postal products, and software products. The company has been in the mail solutions business for the past 91 years and is the leading company in the industry. The company is one of the original entrants to the S&P 500 and a dividend aristocrat as well.
Pitney Bowes currently pays a dividend of $1.48 per share. That payout was higher than last year’s earnings per share of $1.45. A dividend payout of 101% is clearly not sustainable especially for a company that has $940 million in cash and $4.2 billion in long term debt. The debt to equity ratio is a concern because the company is heavily leveraged.
This is not a growth stock with much upside appreciation potential. This is not a high growth industry and the barriers to entry are virtually nonexistent. The sole reason to buy shares of Pitney Bowes is the dividend. The stock has had no capital appreciation over the past decade and the book value is negative. The shares are expensive based on the company’s growth potential.
Pitney Bowes is currently yielding 6.5% which is a fantastic yield. The company has raised its dividend 3% per annum over the past five years. That is much greater than the growth of earnings per share over the same time period. It will be difficult to keep up dividend increases if EPS remains flats.
The company should be able to fund its dividend if it meets this year’s earnings estimate of $2.28 per share. The dividend payout based on this year’s projected earnings would drop to just 65% of earnings. The company’s dividend payout drops to below 40% based on free cash flow.
Pitney Bowes is a stock that investors should consider if they are looking for a nice dividend payout over the short term. I am not a fan of the company’s long term prospects because they participate in a low growth industry with virtually no moat whatsoever.