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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Waste Connections, Inc. (NYSE:WCN) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 2nd of March will not receive the dividend, which will be paid on the 17th of March.
Waste Connections's next dividend payment will be US$0.20 per share. Last year, in total, the company distributed US$0.82 to shareholders. Looking at the last 12 months of distributions, Waste Connections has a trailing yield of approximately 0.8% on its current stock price of $98.63. If you buy this business for its dividend, you should have an idea of whether Waste Connections's dividend is reliable and sustainable. So we need to investigate whether Waste Connections can afford its dividend, and if the dividend could grow.
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. Last year Waste Connections paid out 98% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Waste Connections generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Waste Connections's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Waste Connections has grown its earnings rapidly, up 21% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last five years, Waste Connections has lifted its dividend by approximately 16% 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.
Has Waste Connections got what it takes to maintain its dividend payments? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Waste Connections's paying out such a high percentage of its profit. To summarise, Waste Connections looks okay on this analysis, although it doesn't appear a stand-out opportunity.
In light of that, while Waste Connections has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 4 warning signs for Waste Connections that we recommend you consider before investing in the business.
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.
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