Watsco (NYSE:WSO) Will Pay A Larger Dividend Than Last Year At $2.45
Watsco, Inc.'s (NYSE:WSO) dividend will be increasing from last year's payment of the same period to $2.45 on 31st of January. This makes the dividend yield 3.4%, which is above the industry average.
Check out our latest analysis for Watsco
Watsco's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Watsco was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Looking forward, earnings per share is forecast to fall by 7.0% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 79%, meaning that most of the company's earnings are being paid out to shareholders.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $2.48 in 2013 to the most recent total annual payment of $8.80. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Watsco has impressed us by growing EPS at 21% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Watsco could prove to be a strong dividend payer.
Our Thoughts On Watsco's Dividend
Overall, we always like to see the dividend being raised, but we don't think Watsco will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Watsco (of which 1 is a bit concerning!) you should know about. Is Watsco not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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