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It Might Not Be A Great Idea To Buy WestRock Company (NYSE:WRK) For Its Next Dividend

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Simply Wall St
·3 min read
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WestRock Company (NYSE:WRK) stock is about to trade ex-dividend in day or so. Ex-dividend means that investors that purchase the stock on or after the 10th of February will not receive this dividend, which will be paid on the 23rd of February.

WestRock's next dividend payment will be US$0.20 per share, and in the last 12 months, the company paid a total of US$0.80 per share. Based on the last year's worth of payments, WestRock stock has a trailing yield of around 1.9% on the current share price of $43.08. 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! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for WestRock

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. WestRock 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. 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. Luckily it paid out just 17% of its free cash flow last year.

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?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. WestRock 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. In the past 10 years, WestRock has increased its dividend at approximately 10% a year on average.

Remember, you can always get a snapshot of WestRock's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Should investors buy WestRock for the upcoming dividend? It's hard to get used to WestRock paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think WestRock is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering WestRock as an investment, you'll find it beneficial to know what risks this stock is facing. For example, WestRock has 3 warning signs (and 1 which is significant) we think you should know about.

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.