A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the last few years Wabash National Corporation (NYSE:WNC) has paid a dividend to shareholders. Today it yields 2.2%. Let’s dig deeper into whether Wabash National should have a place in your portfolio.
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does Wabash National fit our criteria?
Wabash National has a trailing twelve-month payout ratio of 25%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 27% which, assuming the share price stays the same, leads to a dividend yield of around 2.6%. In addition to this, EPS should increase to $1.59.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Wabash National as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Wabash National has a yield of 2.2%, which is high for Machinery stocks but still below the market’s top dividend payers.
If Wabash National is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three key aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for WNC’s future growth? Take a look at our free research report of analyst consensus for WNC’s outlook.
- Valuation: What is WNC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WNC is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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 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.