The board of Westlake Corporation (NYSE:WLK) has announced that the dividend on 12th of September will be increased to $0.50, which will be 40% higher than last year's payment of $0.357 which covered the same period. This takes the annual payment to 1.1% of the current stock price, which unfortunately is below what the industry is paying.
Westlake's Dividend Is Well Covered By Earnings
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Westlake was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
The next year is set to see EPS grow by 15.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 15% by next year, which is in a pretty sustainable range.
Westlake Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $0.375, compared to the most recent full-year payment of $1.43. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend's Growth Prospects Are Limited
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. In the last five years, Westlake's earnings per share has shrunk at approximately 3.2% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Westlake that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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