Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Don’t be Fooled by this Double Digit Dividend Aristocrat: Pitney Bowes Inc. (PBI)

Pitney Bowes Inc. (NYSE:PBI) is a “Dividend Aristocrat,” which means it has increased its dividend payout for 25 consecutive years.  Unfortunately, there are many reasons why long term income investors seeking rising dividends should not expect this business supply company to continue these increases into the future.

Pitney Bowes (PBI)A major factor is that paying the dividend consumes way too much of Pitney Bowes’ earnings.  As the table below shows, the dividend payout ratio for Pitney Bowes is much higher than its industry average.  It is also higher than the dividend payout ratio for other Dividend Aristocrats such as Walgreen Company (NYSE:WAG), Sherman-Williams Company (NYSE:SHW), SYSCO Corporation (NYSE:SYY), and Abbot Laboratories (NYSE:ABT).

Metric Pitney Bowes Walgreen Sherman Williams Sysco ABT Industry Average
Dividend Yield 12.20% 2.70% 1.00% 3.50% 1.70% 1.10%
Dividend Payout Ratio 82.09% 45.66% 27.66% 57.21% 54.00% 44.00%

Source: The Motley Fools CAPS, Finviz

In addition to not having the present earnings flow to sustain its double digit dividend yield, the future cash flow for Pitney Bowes should not be able to support the increases necessary to raise it yearly to maintain Dividend Aristocrat status.  Earnings-per-share growth for Pitney Bowes over the last 5 years is down by 7.14%.  For the next year, EPS growth is projected to fall by another 4.02%.  Over the next five years, it is expected to fall by an average of 1.50%.

By contrast, EPS growth for Walgreen, the drug store chain, is projected to grow by 13.23% for the next five years.  Over that same period, Sherman Williams, the paint and chemicals company, is expected to enjoy EPS growth of 17.30%.  For Sysco, five-year EPS growth is estimated by the analyst community to increase 6.97% for the food supplier.  Big Pharma’s Abbot Laboratories should see 4.97% growth in EPS for the next half decade.  With this EPS growth, these Dividend Aristocrats can afford to responsibly increase their dividend payments annually.

It is a different story for Pitney Bowes, as competition from the Internet has been crippling for its sector.  Sales growth and EPS growth are both down for the last five years, and for the most recent quarter sales growth is off by 6.47%.  Over the same period, EPS growth is down by 31.67%.

Other financial indicators are just as unsettling for those expecting the dividend to increase annually.  The price-to-free cash flow ratio is 16.32.  To put this in perspective, the share price is down by 30.49% for the last year.  Without this plunge, the anemic free cash flow would be even more concerning.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.