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Shares of Watsco, Inc. (NYSE:WSO) will begin trading ex-dividend in 4 days. To qualify for the dividend check of US$1.60 per share, investors must have owned the shares prior to 12 April 2019, which is the last day the company's management will finalize their list of shareholders to which they will send dividend payments. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let's take a look at Watsco's most recent financial data to examine its dividend characteristics in more detail.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
Does Watsco pass our checks?
Watsco has a trailing twelve-month payout ratio of 86%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 80% which, assuming the share price stays the same, leads to a dividend yield of around 4.2%. In addition to this, EPS should increase to $6.72.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. Although WSO's per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Relative to peers, Watsco has a yield of 4.3%, which is high for Trade Distributors stocks.
With this in mind, I definitely rank Watsco as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I've compiled three essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for WSO’s future growth? Take a look at our free research report of analyst consensus for WSO’s outlook.
- Valuation: What is WSO 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 WSO is currently mispriced by the market.
- Other 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.