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WD-40 Company (NASDAQ:WDFC) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 15th of October in order to be eligible for this dividend, which will be paid on the 30th of October.
WD-40's next dividend payment will be US$0.67 per share. Last year, in total, the company distributed US$2.68 to shareholders. Calculating the last year's worth of payments shows that WD-40 has a trailing yield of 1.4% on the current share price of $198.22. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. WD-40 paid out more than half (73%) of its earnings last year, which is a regular payout ratio for most companies. 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 last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see WD-40 earnings per share are up 4.5% per annum over the last five years. A high payout ratio of 73% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, WD-40 could be signalling that its future growth prospects are thin.
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, WD-40 has lifted its dividend by approximately 10% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Should investors buy WD-40 for the upcoming dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. To summarise, WD-40 looks okay on this analysis, although it doesn't appear a stand-out opportunity.
However if you're still interested in WD-40 as a potential investment, you should definitely consider some of the risks involved with WD-40. Case in point: We've spotted 2 warning signs for WD-40 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.
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