Can Pitney Bowes Remain a Top Dividend Stock?

Investors have always been interested in stocks that pay dividends, but lately low interest rates on bonds and other fixed-income investments have made solid dividend payers even more valuable. For years, Pitney Bowes (PBI -0.99%) was among the most promising dividend stocks in the market, as one of the few exclusive companies to make the list of Dividend Aristocrats. In order to become a member of this elite group, a company must have raised its dividend payouts to shareholders every single year for at least a quarter-century. Only a few dozen stocks manage to make the cut, and those that do tend to stay there for a long time.

With the company having had to make a massive shift to its business model in recent years in order to adapt to changing industry conditions, Pitney Bowes made many investors extremely nervous about whether it could remain among its Dividend Aristocrat peers. Last year, it finally got taken off the Dividend Aristocrats list, but not because it stopped increasing its payouts. Rather, it failed to meet Standard & Poor's minimum market capitalization requirement of $3 billion. Let's take a closer look at Pitney Bowes to see whether it can sustain its long streak of rewarding dividend payouts to investors.

Dividend Stats on Pitney Bowes

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

The latest on Pitney Bowes
Pitney Bowes was once the undisputed giant in the global mail-services industry. With huge market share in sales of its postage meters and other business mailing essentials, it was an integral part of how both large and small businesses reached out to their customers.

Lately, though, the company has realized that the writing was on the wall for its legacy mailing business. As more delivery services went online, upstart Stamps.com and Newell Rubbermaid's Endicia took away some of Pitney Bowes' dominant position in the industry.

In response, Pitney Bowes has turned to a dramatic restructuring, moving in the direction of broader-based business services, with a focus on business analytics and data management. That's an extremely crowded industry, but it also has a lot more growth opportunities than its legacy business. With the rise of the Big Data initiative, Pitney Bowes has plenty of room to use assets like its geocoding software to open doors to new customers.

Looking at its most recent dividends, Pitney Bowes has been getting by on just token payout increases for a long time now:

Source: PBI Dividend data by YCharts.

Pitney Bowes has also been finding other uses for its free cash. Just last week, it said that it had accepted about $400 million in tendered notes from bondholders to retire debt due in the next three years. That may be good for its balance sheet, but it could also take away some of the cash that would ordinarily go to support its dividend. Pitney Bowes' payout ratio isn't terribly high at this point, but with its having been taken off the Dividend Aristocrats list anyway, the company may no longer have the incentive to keep its streak alive.

When will dividends rise again?
The most troubling sign for dividend investors is that Pitney has traditionally raised its payout in February, yet it chose not to do so this year. Although shareholders can't really complain about a 10% dividend yield, payout stagnation will have many investors fearing that Pitney Bowes has taken another step down a road that will eventually lead to dividend cuts.

Clearly, Pitney Bowes faces a bigger struggle: how to restructure its business to adapt to the fundamental change in the mail and business logistics industry. Only if it manages to succeed in reinventing itself will it have the luxury to make dividend investors happy with richer payouts.

Click here to add Pitney Bowes to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.