Two Days Left To Buy WD-40 Company (NASDAQ:WDFC) Before The Ex-Dividend Date
WD-40 Company (NASDAQ:WDFC) stock is about to trade ex-dividend in two days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase WD-40's shares before the 13th of January in order to be eligible for the dividend, which will be paid on the 31st of January.
The company's upcoming dividend is US$0.78 a share, following on from the last 12 months, when the company distributed a total of US$3.12 per share to shareholders. Based on the last year's worth of payments, WD-40 has a trailing yield of 1.3% on the current stock price of $240.99. If you buy this business for its dividend, you should have an idea of whether WD-40's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for WD-40
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 (62%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that WD-40'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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at WD-40, with earnings per share up 5.4% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. WD-40 has delivered 11% dividend growth per year on average over the past 10 years. 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.
To Sum It Up
Is WD-40 an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and WD-40 paid out a bit over half of its earnings and free cash flow last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
With that being said, if dividends aren't your biggest concern with WD-40, you should know about the other risks facing this business. Case in point: We've spotted 1 warning sign 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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
