Pinterest (NYSE:PINS) is one of the leading social media companies and it operates in a highly lucrative industry.
The company’s main revenue source comes from advertisement revenues.
While Pinterest has gone public for nearly 3 years after completing its IPO in April 2019, the company has never declared or paid any cash dividends for the 3 years that the company has gone public.
The following excerpt extracted from Pinterest’s 2020 annual report explains about the company’s dividend policy:
We have never declared or paid dividends on our capital stock and do not intend to pay any dividends in the foreseeable future.
Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on then-existing conditions, including our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
In addition, the terms of our revolving credit facility place certain limitations on the number of dividends we can pay, even if no amounts are currently outstanding.
While Pinterest is currently a non-dividend-paying stock, that does not necessarily mean that the company will never pay a dividend in the future.
For your information, Pinterest has already been able to make a decent profit and generate positive net cash from operations after only 1 year of going public.
In addition, Pinterest is projected to make even more profits and generate higher free cash flow by FY2021.
Therefore, the possibility of Pinterest paying a cash dividend in the future is very real to some extends.
That said, in this article, we are going to find out how likely Pinterest is in paying a cash dividend somewhere in FY2021 that will provide a 1% yield based on today’s stock price of $60 USD.
Let’s take a look.
Pinterest’s Cash Dividend Topics
1. Dividend Per Share And Cash Payment
2. Earnings Estimate
3. Projected Operating Cash Flow
4. Projected Free Cash Flow
5. Dividend Payout Ratio For 1% Yield
6. Dividend Payout Ratio For 0.5% Yield
Pinterest’s Dividend Per Share And Cash Payment
|Fiscal Year||Pinterest Share Price ($ USD)||Pinterest Dividend Per Share That Gives 1% Yield||Pinterest Cash Payments For Dividend ($ Millions)|
The table above shows Pinterest’s dividend rate of $0.60 USD per share that will yield 1% based on today’s stock price of $60 USD per share.
In terms of cash payment, Pinterest needs to have about $442 million of cash ready for the dividend payment.
This amount is calculated based on Pinterest’s estimated diluted shares outstanding of about 736 million by FY2021, roughly 10% higher than the figure in FY2020.
Pinterest’s Earnings Estimate
Can Pinterest afford a cash dividend that will cost the company as much as $442 million?
To find out, we need to figure out what Pinterest’s projected earnings are like for fiscal 2021.
According to Yahoo Finance (snapshot above), Pinterest will earn an estimated $0.91 USD per share on average in non-GAAP earnings for fiscal 2021 according to 22 analysts.
For a diluted share outstanding of 736 million, Pinterest’s $0.91 per share non-GAAP earnings will translate to about $670 million non-GAAP net income.
|Fiscal Year||Pinterest Non-GAAP Earnings ($ Millions)|
Therefore, Pinterest is projected to earn an estimated non-GAAP net income of $670 million for fiscal 2021, a year-on-year increase of more than 130%.
Pinterest’s Projected Operating Cash Flow
|Fiscal Year||Pinterest Non-GAAP Earnings ($ Millions)||Pinterest Net Cash From Operations ($ Millions)|
Aside from earnings, we need to estimate Pinterest’s net cash from operations as dividends are paid out of cash.
Let’s assume a 1-to-1 translation from net income to operating cash flow for Pinterest’s FY2021 result.
In this case, Pinterest’s entire earnings are translated to net cash from operations.
As shown in the chart above, Pinterest’s net cash from operations will arrive at $670 million for FY2021 for a 1-to-1 translation.
This is a highly optimistic figure but is still achievable as Pinterest has already generated as much as $375 million in net cash from operations year-to-date.
Using this figure, Pinterest’s net cash from operations will be $670 million for fiscal 2021, an increase of over 2000% from the figure in FY2020.
Pinterest’s Projected Free Cash Flow
|Fiscal Year||Pinterest Net Cash From Operations ($ Millions)||Pinterest Capital Spending ($ Millions)||Pinterest Free Cash Flow ($ Millions)|
As Pinterest did not provide an outlook for free cash flow for FY2021, we need to estimate how much free cash flow the company will produce in FY2021.
Why free cash flow?
The reason is that free cash flow is the cash left after accounting for capital expenditures.
Pinterest may have other investments, including capital expenditures, which require a significant amount of cash payments.
Therefore, we need to account for these cash outflows which may take significant cash out of the company’s operating cash flow.
In Pinterest’s case, we need to account for the company’s capital expenditure for FY2021 as shown in the table above.
Year to date, Pinterest has significantly reduced its capital spending and the company had spent up to only $3 million as of 2Q 2021.
Let’s assume that Pinterest’s capital spending in FY2021 follows the FY2020 figure at $17 million.
Therefore, Pinterest’s free cash flow for fiscal 2021 will come to about $653 million after accounting for the $17 million of cash allocated for capital expenditures.
Pinterest’s Dividend Payout Ratio For 1% Yield
|Fiscal Year||Pinterest’s Cash Payment For Dividend That Yield 1% ($ Millions)||Pinterest Earnings ($ Millions)||Pinterest Free Cash Flow ($ Millions)||Pinterest Dividend To Earnings Payout Ratio (1% Yield)||Pinterest Dividend To Free Cash Flow Payout Ratio (1% Yield)|
As shown in the table above, Pinterest needs to pay approximately $442 million for a dividend yield of 1%.
Against the non-GAAP earnings and free cash flow figures of $670 million and $653 million, respectively, Pinterest’s dividend payout ratios will come to about 66% and 68%.
At these levels of payout ratio, Pinterest’s dividend payment looks slightly stretched as the dividend is projected to consume nearly 70% of FY2021 earnings and free cash flow.
If Pinterest were to go ahead to pay out this amount of cash dividend throughout FY2021, the company will be left with only about $200 million of earnings and free cash flow by the end of FY2021.
However, Pinterest may find the $200+ million profit and free cash flow sufficient for re-investment and as working capital since the company has been debt-free after going public in FY2019.
Additionally, Pinterest’s operations also have been able to support itself without relying on external capital injection such as debt and stock issuance, except for the capital obtained during the IPO in 2019.
Therefore, it’s still possible for Pinterest to pay out this amount of cash dividends somewhere in FY2021 based on the projected earnings and free cash flow.
If Pinterest is able to meet the projected figures and may even exceed them, then it’s highly probable that Pinterest will declare a cash dividend in FY2021.
Pinterest’s Dividend Payout Ratio For 0.5% Yield
|Fiscal Year||Pinterest’s Cash Payment For Dividend That Yield 0.5% ($ Millions)||Pinterest Earnings ($ Millions)||Pinterest Free Cash Flow ($ Millions)||Pinterest Dividend To Earnings Payout Ratio (1% Yield)||Pinterest Dividend To Free Cash Flow Payout Ratio (1% Yield)|
While Pinterest may seem a bit stretched when it comes to paying a cash dividend that yields 1%, how about a dividend that yields only 0.5%?
At only a 0.5% yield, Pinterest’s dividend per share will come to only $0.30 USD per share or about $221 million in cash payments according to the table above.
Against the earnings and free cash flow figures of $670 million and $653 million, respectively, Pinterest’s estimated dividend payout ratio will only be slightly above 30% for both metrics.
At these levels of payout ratio, the dividend seems affordable for Pinterest.
Pinterest will have about $400 million of earnings and cash left after spending a cash dividend payment of slightly over $200 million in FY2021.
Therefore, this arrangement seems workable for Pinterest and even realistic as the company is still left with plenty of cash that can be put to good use, including investment and business acquisition.
If Pinterest’s projected earnings and free cash flow for fiscal 2021 turns out to be higher, the case of a cash dividend that yields 0.5% looks even more justified and probable.
The best thing about Pinterest is that the company is debt-free and can sustain itself without relying on external capital.
Moreover, Pinterest has been a profitable company and printing cash.
These factors alone are enough to justify a cash dividend payment from Pinterest.
The case of a cash dividend payment that yields 1% in FY2021 is highly realistic and probable for Pinterest.
That said, Pinterest is a profitable company and is projected to generate more than $600 million in non-GAAP earnings and free cash flow for FY2021.
Therefore, Pinterest definitely has the financial capability to declare a dividend in 2021.
Pinterest can afford to pay a cash dividend with a rate of $0.60 USD per share that yields 1% at today’s stock price of $60.
The 1% dividend yield may seem a bit excessive for Pinterest as the payout ratio will be at a whopping 70% with respect to earnings and free cash flow.
However, a 0.5% dividend yield looks more affordable for Pinterest as the dividend payout ratios amount to only slightly above 30% with respect to earnings and free cash flow.
After accounting for the dividend payment, Pinterest will still have a leftover of roughly $400 million in earnings and free cash flow for the 0.5% dividend yield case.
Additionally, Pinterest is debt-free and has been minting cash.
So, to Pinterest, please declare a cash dividend now!
Credits and References
1. Pinterest’s financial figures were obtained and referenced from the company’s financial statements which are available at the following links:
a) Pinterest Investor Relations
b) Yahoo Finance
2. Featured images in this article are used under creative commons license and sourced from the following websites: Bull Market and Pins your ideas here!.
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