The Warehouse Group Limited (NZSE:WHS) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 21st of November to receive the dividend, which will be paid on the 5th of December.
Warehouse Group’s next dividend payment will be NZ$0.094 per share, and in the last 12 months, the company paid a total of NZ$0.17 per share. Looking at the last 12 months of distributions, Warehouse Group has a trailing yield of approximately 6.0% on its current stock price of NZ$2.84. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We’d be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Warehouse Group generated enough free cash flow to afford its dividend. Fortunately, it paid out only 38% of its free cash flow in the past year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we’re not too excited that Warehouse Group’s earnings are down 4.3% a year over the past five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Warehouse Group’s dividend payments per share have declined at 2.1% per year on average over the past ten years, which is uninspiring. It’s never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company’s health in an attempt to maintain it.
To Sum It Up
Should investors buy Warehouse Group for the upcoming dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. Overall we’re not hugely bearish on the stock, but there are likely better dividend investments out there.
Wondering what the future holds for Warehouse Group? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
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