Reliance Worldwide Corporation Limited (ASX:RWC) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 10th of September to receive the dividend, which will be paid on the 11th of October.
Reliance Worldwide's next dividend payment will be AU$0.05 per share, and in the last 12 months, the company paid a total of AU$0.09 per share. Calculating the last year's worth of payments shows that Reliance Worldwide has a trailing yield of 2.4% on the current share price of A$3.75. If you buy this business for its dividend, you should have an idea of whether Reliance Worldwide's dividend is reliable and sustainable. So we need to investigate whether Reliance Worldwide can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Reliance Worldwide is paying out an acceptable 53% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Reliance Worldwide has grown its earnings rapidly, up 55% a year for the past three years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 3 years, Reliance Worldwide has increased its dividend at approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Should investors buy Reliance Worldwide for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Reliance Worldwide is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. To summarise, Reliance Worldwide looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Reliance Worldwide? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.