Cleanaway Waste Management Limited (ASX:CWY) stock is about to trade ex-dividend in 4 days. This means that investors who purchase shares on or after the 11th of September will not receive the dividend, which will be paid on the 6th of October.
Cleanaway Waste Management's next dividend payment will be AU$0.021 per share, and in the last 12 months, the company paid a total of AU$0.042 per share. Based on the last year's worth of payments, Cleanaway Waste Management stock has a trailing yield of around 1.7% on the current share price of A$2.5. If you buy this business for its dividend, you should have an idea of whether Cleanaway Waste Management's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Cleanaway Waste Management paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Cleanaway Waste Management generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Cleanaway Waste Management's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Cleanaway Waste Management's earnings have been skyrocketing, up 26% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Cleanaway Waste Management could have strong prospects for future increases to the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cleanaway Waste Management has delivered 19% dividend growth per year on average over the past six years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Should investors buy Cleanaway Waste Management for the upcoming dividend? Cleanaway Waste Management's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Cleanaway Waste Management for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Cleanaway Waste Management and you should be aware of it before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.