Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Wavestone SA (EPA:WAVE) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 31st of July, you won't be eligible to receive this dividend, when it is paid on the 2nd of August.
Wavestone's next dividend payment will be €0.23 per share, on the back of last year when the company paid a total of €0.23 to shareholders. Calculating the last year's worth of payments shows that Wavestone has a trailing yield of 0.9% on the current share price of €24.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Wavestone is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last 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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Wavestone has grown its earnings rapidly, up 22% a year for the past five years. Wavestone looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Wavestone has lifted its dividend by approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Should investors buy Wavestone for the upcoming dividend? We love that Wavestone is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Wavestone looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Wavestone? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.