Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Waddell & Reed Financial, Inc. (NYSE:WDR) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 8th of October in order to be eligible for this dividend, which will be paid on the 2nd of November.
Waddell & Reed Financial's next dividend payment will be US$0.25 per share, and in the last 12 months, the company paid a total of US$1.00 per share. Last year's total dividend payments show that Waddell & Reed Financial has a trailing yield of 6.6% on the current share price of $15.05. If you buy this business for its dividend, you should have an idea of whether Waddell & Reed Financial's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Waddell & Reed Financial paid out 72% of its earnings to investors last year, a normal payout level for most businesses.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Waddell & Reed Financial's earnings per share have fallen at approximately 18% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Waddell & Reed Financial has increased its dividend at approximately 2.8% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
The Bottom Line
Is Waddell & Reed Financial an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Waddell & Reed Financial's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
So if you're still interested in Waddell & Reed Financial despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 2 warning signs for Waddell & Reed Financial (of which 1 is a bit unpleasant!) you should know about.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email firstname.lastname@example.org.