U.S. Markets close in 4 hrs 20 mins
  • S&P 500

    3,853.77
    -1.59 (-0.04%)
     
  • Dow 30

    30,972.83
    +12.83 (+0.04%)
     
  • Nasdaq

    13,642.92
    +6.93 (+0.05%)
     
  • Russell 2000

    2,156.52
    -6.75 (-0.31%)
     
  • Crude Oil

    52.57
    -0.20 (-0.38%)
     
  • Gold

    1,853.10
    -2.10 (-0.11%)
     
  • Silver

    25.61
    +0.13 (+0.51%)
     
  • EUR/USD

    1.2162
    +0.0018 (+0.1460%)
     
  • 10-Yr Bond

    1.0430
    +0.0030 (+0.29%)
     
  • Vix

    22.92
    -0.27 (-1.16%)
     
  • GBP/USD

    1.3733
    +0.0058 (+0.4230%)
     
  • USD/JPY

    103.6670
    -0.0890 (-0.0858%)
     
  • BTC-USD

    31,811.09
    -2,644.03 (-7.67%)
     
  • CMC Crypto 200

    640.40
    -6.92 (-1.07%)
     
  • FTSE 100

    6,656.76
    +17.91 (+0.27%)
     
  • Nikkei 225

    28,546.18
    -276.11 (-0.96%)
     

Here's Why We're Wary Of Buying Covanta Holding's (NYSE:CVA) For Its Upcoming Dividend

Simply Wall St
·3 min read

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 Covanta Holding Corporation (NYSE:CVA) is about to go ex-dividend in just three days. Ex-dividend means that investors that purchase the stock on or after the 30th of December will not receive this dividend, which will be paid on the 8th of January.

Covanta Holding's upcoming dividend is US$0.08 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Last year's total dividend payments show that Covanta Holding has a trailing yield of 2.4% on the current share price of $13.07. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Covanta Holding has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Covanta Holding

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. Covanta Holding reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out more than half (74%) of its free cash flow in the past year, which is within an average range for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Covanta Holding was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Covanta Holding has delivered 0.6% dividend growth per year on average over the past 10 years.

Get our latest analysis on Covanta Holding's balance sheet health here.

Final Takeaway

Has Covanta Holding got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Covanta Holding despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 3 warning signs for Covanta Holding (2 make us uncomfortable) you should be aware of.

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.

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 editorial-team (at) simplywallst.com.