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There's A Lot To Like About Cleanaway Waste Management Limited's (ASX:CWY) Upcoming 0.9% Dividend

Simply Wall St

Readers hoping to buy Cleanaway Waste Management Limited (ASX:CWY) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 9th of September in order to receive the dividend, which the company will pay on the 3rd of October.

Cleanaway Waste Management's next dividend payment will be AU$0.019 per share. Last year, in total, the company distributed AU$0.038 to shareholders. Based on the last year's worth of payments, Cleanaway Waste Management stock has a trailing yield of around 1.9% on the current share price of A$2.01. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Cleanaway Waste Management has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Cleanaway Waste Management

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. Cleanaway Waste Management paid out 59% of its earnings to investors last year, a normal payout level for most businesses. 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. It distributed 35% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Cleanaway Waste Management's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

ASX:CWY Historical Dividend Yield, September 4th 2019

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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Cleanaway Waste Management has grown its earnings rapidly, up 68% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 5 years, Cleanaway Waste Management has increased its dividend at approximately 20% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Cleanaway Waste Management an attractive dividend stock, or better left on the shelf? Cleanaway Waste Management's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

Curious what other investors think of Cleanaway Waste Management? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.