It looks like WVS Financial Corp. (NASDAQ:WVFC) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 9th of August will not receive this dividend, which will be paid on the 22nd of August.
WVS Financial's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.48 to shareholders. Last year's total dividend payments show that WVS Financial has a trailing yield of 2.8% on the current share price of $17.35. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. WVS Financial is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see WVS Financial has grown its earnings rapidly, up 29% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. WVS Financial's dividend payments per share have declined at 2.8% per year on average over the past 10 years, which is uninspiring. WVS Financial is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
From a dividend perspective, should investors buy or avoid WVS Financial? Companies like WVS Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, WVS Financial appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Want to learn more about WVS Financial's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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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