Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Wilmington plc (LON:WIL) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 17th of October will not receive this dividend, which will be paid on the 15th of November.
Wilmington's next dividend payment will be UK£0.05 per share, and in the last 12 months, the company paid a total of UK£0.09 per share. Based on the last year's worth of payments, Wilmington has a trailing yield of 4.0% on the current stock price of £2.3. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Wilmington can afford its dividend, and if the dividend could grow.
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. Wilmington paid out 71% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Wilmington's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Wilmington's earnings per share have been growing at 11% a year for the past five years. Wilmington has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Wilmington has delivered an average of 2.7% per year annual increase in its dividend, based on the past ten years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Is Wilmington an attractive dividend stock, or better left on the shelf? We like Wilmington's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.
Ever wonder what the future holds for Wilmington? See what the three analysts we track 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.
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 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.