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WD-40 (NASDAQ:WDFC) Will Pay A Larger Dividend Than Last Year At US$0.78

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WD-40 Company (NASDAQ:WDFC) has announced that it will be increasing its dividend on the 31st of January to US$0.78. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

See our latest analysis for WD-40

WD-40's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, WD-40 was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 93% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 16.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
historic-dividend

WD-40 Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$1.08 in 2012, and the most recent fiscal year payment was US$3.12. This means that it has been growing its distributions at 11% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

WD-40 Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. WD-40 has impressed us by growing EPS at 5.4% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On WD-40's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments WD-40 has been making. We don't think WD-40 is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 1 warning sign for WD-40 that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.