Wintrust Financial Corporation (NASDAQ:WTFC) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Wintrust Financial investors that purchase the stock on or after the 10th of May will not receive the dividend, which will be paid on the 25th of May.
The company's upcoming dividend is US$0.40 a share, following on from the last 12 months, when the company distributed a total of US$1.60 per share to shareholders. Last year's total dividend payments show that Wintrust Financial has a trailing yield of 2.6% on the current share price of $61.47. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Wintrust Financial is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Wintrust Financial's earnings per share have been growing at 14% a year for the past five years.
Wintrust Financial also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Wintrust Financial has lifted its dividend by approximately 24% a year on average. 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 Wintrust Financial for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Wintrust Financial appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
So while Wintrust Financial looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 2 warning signs we've spotted with Wintrust Financial (including 1 which is significant).
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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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