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Guess Who’s Paying a Dividend That Yields 11% -- and Can it Last?

A rising dividend yield can be nice -- or it can be a sign of trouble. In the case of Pitney Bowes (PBI), the postage-meter maker that has seen its dividend yield rise to just over 11% from 7.98% in December, there may well be reason to worry.

Pitney Bowes has in fact raised its dividend recently, to 37.5 cents a share in July from 37 cents a share previously. That's a small increase, about 1.4%, but it follows many years of regular dividend hikes. That earned Pitney Bowes a place on the S&P 500 Dividend Aristocrats list, which in turn attracts dividend fund managers, as YCharts' Carla Fried recently reported.

The Aristocrats list is full of not-so-sexy companies that have, for the most part, managed steady earnings increases to keep funding increased dividends. Think Leggett & Platt (LEG), Walgreens (WAG), W.W. Grainger (GWW), Becton Dickinson (BDX) and 3M (MMM).

PBI Dividend Chart

PBI Dividend data by YCharts

The fact that dividend yield is rising more quickly, of course, can be chalked up to a recent slide in the company's share price -- at about $13.37, PBI shares are down 29% year-to-date.

PBI Dividend Yield Chart

PBI Dividend Yield data by YCharts

A stock slide isn't all bad for dividend investors: It makes that same 37.5-cent dividend cheaper to buy, after all. Still, a closer look at Pitney Bowes raises concerns.

That's because Pitney Bowes' stock price isn't the only thing declining. So are the cash and equivalents that the company lists on its balance sheet -- the cash cushion it has to pay that dividend. After increasing fairly steadily since fall 2010, cash and equivalents took a dive between the company's March and June quarters, falling to just under $500 million from almost double that amount, or $916 million.

The company used $550 million of cash during the first six months of this year -- more than the $370 million it generated -- to pay down long-term debt, on top of the $159 million it spent on dividends, according to its latest quarterly report. Pitney Bowes' chief financial officer, Michael Monahan, argued on the company's August 2 earnings call, that the company can support its current dividend, at about $300 million a year, while maintaining enough of a cash cushion to keep a strong credit rating.

PBI Cash and Equivalents Chart

PBI Cash and Equivalents data by YCharts

The company still has a bigger cash cushion for the previous few years, but the trend isn't pretty.

Worse, the company's cash-generating machine, which had apparently picked up steam for much of 2011, appears to be slowing down. That could be confirming the longer-term slide in the company's cash from operations -- not a good sign if you want those dividends to keep coming.

PBI Chart

PBI data by YCharts

This, of course, is on top of the (continuing) revenue concerns we raised the last time YCharts looked closely at Pitney Bowes, in May.

Pitney Bowes can presumably keep the stream of dividends going for a while longer. But without something to turn around its revenue and cash flow, it's hard to be terribly optimistic about that rising dividend yield.

Theo Francis is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.

Read more articles about: Company Analysis  

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