The second company I will profile today is Pitney Bowes (NYSE:PBI), which provides software, hardware, and services to enable physical and digital communications in the United States and internationally. This dividend champion has raised dividends to shareholders for 30 years in a row. The company has slowed down on the rate of increase in dividend payments in recent years. The dividend has been increasing at 2 cents per year since 2008.
Currently, the stock yields an above average 9.70%, and has a dividend payout ratio of 70%. The forward dividend payout ratio is 77%. The stock is trading at a forward P/E ratio of 8, which is low. The yield is very high and the P/E is very low. This could be the market’s way of saying that the current dividend payment might be difficult to maintain, and that it could be at risk of a cut.
A company’s stock price could be temporarily pushed down by shareholders who do not believe in the long-term outlook for a company. If the stock price goes up, the yield and P/E would return to normal levels. The low P/E ratio could signal a stock that is undervalued, or it could be the market’s way of saying that future earnings would be much lower going forward.
Overall, a dividend yield of 10% is something that you do not see every day. In most cases of common stocks of your typical corporation, this high yield is a warning sign of an impending dividend cut.
The issue with the company is that it is providing postage processing equipment such as postage meters to organizations. Revenues have been declining, and the outlook for the business is not very bright. The company has tried to reposition itself in the new digital document environment, and eliminate costs from its structure, but the truth of the matter is that physical mail processing by organizations is destined to decline over time.
Full Disclosure: None