Park Lawn Corporation (TSE:PLC) has announced that it will pay a dividend of $0.114 per share on the 15th of January. Including this payment, the dividend yield on the stock will be 2.2%, which is a modest boost for shareholders' returns.

View our latest analysis for Park Lawn

Park Lawn's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Park Lawn was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 99.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range. TSX:PLC Historic Dividend December 23rd 2023

Park Lawn's Track Record Isn't Great

While the company's dividend hasn't been very volatile, it has been decreasing over time, which isn't ideal. Since 2013, the annual payment back then was $0.455, compared to the most recent full-year payment of $0.329. This works out to be a decline of approximately 3.2% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Park Lawn has impressed us by growing EPS at 12% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like Park Lawn's Dividend

Overall, we like to see the dividend staying consistent, and we think Park Lawn might even raise payments in the future. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 3 warning signs for Park Lawn that you should be aware of before investing. Is Park Lawn not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.