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Worley Limited (ASX:WOR) Stock Goes Ex-Dividend In Just Three Days

Simply Wall St

Readers hoping to buy Worley Limited (ASX:WOR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 1st of September in order to be eligible for this dividend, which will be paid on the 30th of September.

Worley's upcoming dividend is AU$0.25 a share, following on from the last 12 months, when the company distributed a total of AU$0.50 per share to shareholders. Based on the last year's worth of payments, Worley stock has a trailing yield of around 5.3% on the current share price of A$9.48. If you buy this business for its dividend, you should have an idea of whether Worley's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Worley

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Worley paid out 152% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Worley fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Worley's earnings have been skyrocketing, up 60% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Worley has seen its dividend decline 5.8% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Is Worley worth buying for its dividend? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Worley's paying out such a high percentage of its profit. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Worley's dividend merits.

On that note, you'll want to research what risks Worley is facing. For example - Worley has 3 warning signs we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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 editorial-team@simplywallst.com.