Here's Why We're Wary Of Buying Weyerhaeuser Company's (NYSE:WY) For Its Upcoming Dividend
Weyerhaeuser Company (NYSE:WY) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 5th of September to receive the dividend, which will be paid on the 20th of September.
Weyerhaeuser's next dividend payment will be US$0.34 per share, and in the last 12 months, the company paid a total of US$1.36 per share. Last year's total dividend payments show that Weyerhaeuser has a trailing yield of 5.2% on the current share price of $26.31. 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 check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Weyerhaeuser
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. Weyerhaeuser distributed an unsustainably high 134% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. It's not unusual to see REITs distributing all of their income to shareholders. Yet a payout ratio this high we feel is still cause for concern as it suggests the dividend is being funded from cash on the balance sheet, or by borrowing. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 144% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given Weyerhaeuser's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Weyerhaeuser's earnings per share have plummeted approximately 72% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Weyerhaeuser has lifted its dividend by approximately 3.7% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Weyerhaeuser is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
To Sum It Up
Is Weyerhaeuser worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (134%) and cash flow (144%) as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Ever wonder what the future holds for Weyerhaeuser? See what the ten 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 editorial-team@simplywallst.com. 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.
