PBI - Pitney Bowes: 4.7% Dividend Trends By The Numbers

Summary

• Pitney Bowes pays out an attractive 4.7%+ dividend yield.
• Growth though has been sluggish of late putting into question the growth path of PBI in 2023.
• We delve into PBI's cash flow and balance sheet trends to see how the financials are bearing the recent sluggish growth curve.

Intro

If we pull up a technical chart of Pitney Bowes Inc. ( PBI ), we can see that shares recently were stalled by the company's 200-week moving average. This is noteworthy in my opinion despite PBI's generous dividend yield (4.64%) and keen valuation (Forward sales multiple of 0.22). The thing is that value investors make the mistake all too long of focusing too much on the inherent value of the stock to the detriment of the company's technicals as well as profitability trends.

In fact, with inflation coming in higher than expected in January, buying a cheap dividend-paying stock such as Pitney Bowes Inc. remains a risky proposition because one still needs an average annual nominal rate of return of 6 to 8% just to keep one's purchasing power intact. This is why we pay very close attention to how Pitney Bowes trades on the technical chart and whether resistance levels can be taken out to the upside.

Profitability trends are another key area to delve into when attempting to ascertain forward-looking returns. On this point, with the company just off the back of announcing its fourth-quarter and fiscal 2022 numbers, the CEO stated that improvement was on the horizon for PBI due to ongoing initiatives which are beginning to gain traction. The 8% top-line decline in the fourth quarter still produced a bottom-line profit ($6.3 million or $0.21 per share) but meant that net income for the year came in at a subdued $36.9 million. Suffice it to say, with approximately $35 million being paid out in dividend payments at present, net profit in fiscal 2022 barely covered the payout.

Therefore, let's delve into some of the key trends which can give us some insights into the broader strength of PBI's dividend . These include the company's cash flow, its debt, and forward-looking earnings expectations going forward.

Cash Flow

Although the above-mentioned $36.9 million in net income ended up generating almost $95 million in operating cash flow for the year, the company spent $27+ million on investment activities along with $174+ million on financing activities. The principal incomings and outgoing in both sections (Investing & Financing) were capital expenditure and divestitures on the investing side along with debt repayments and dividend payments on the financing side. Therefore, the dividend was not funded by internal cash-flow generation in fiscal 2022 but was funded from the purse of $132+ million of balance sheet cash that needed to be put up to balance the cash-flow statement last year.

Balance Sheet

Although PBI has been making inroads into bringing down its long-term debt ($2.172 billion at the end of fiscal 2022), the company is in danger of dipping into negative equity (Reported positive equity of a mere $60 million at the end of Q4) over the near-term. In saying this, PBI has reported treasury stock of over $4.5 billion on its balance sheet. This line item relates to repurchased stock that has yet to be retired so it really is an asset on the balance sheet as management can re-issue these shares if indeed it desires to in the future. Therefore, in essence, PBI's assets are not as expensive as they appear but the trailing interest coverage ratio of 1.41 demonstrates that sustained payments need to be made toward the company's debt in order to ensure the company remains profitable. Such a low-interest coverage ratio explains why the $0.05 per share dividend has not grown for quite some time now in PBI.

Forward-Looking Growth Expectations

Analysts who follow this company expect more or less flat revenue growth next year (Approximately $3.5 billion in sales) so it will be interesting to see how margins pan out in fiscal 2023. Management actually expects operating earnings growth to outpace sales growth due to improving earnings in Global E-commerce as a result of sustained growth in Domestic parcels. Moreover, Financial services & shipping within SendTech as well as sustained margin improvement in Presort are expected to drive bottom-line growth in fiscal 2023. Earnings revisions however have been on the wane in recent months which may explain the topping pattern discussed earlier on the technical chart.

Conclusion

After reviewing PBI's recent earnings report and financial statements, growth is the most pressing issue affecting the company at present. With interest rates rising ( which will add to interest expense) and a 33-year dividend record to protect, cash will remain king in upcoming quarters. Therefore, with capital gain potential in the share price looking rather low at present, we recommend that income-orientated investors hold off for a better entry before putting money to work here. We look forward to continued coverage.

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