Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Wyndham Destinations, Inc. (NYSE:WYND) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 12th of September will not receive this dividend, which will be paid on the 30th of September.
Wyndham Destinations's next dividend payment will be US$0.45 per share, on the back of last year when the company paid a total of US$1.80 to shareholders. Based on the last year's worth of payments, Wyndham Destinations stock has a trailing yield of around 4.0% on the current share price of $45.43. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Wyndham Destinations has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Wyndham Destinations paid out a comfortable 38% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Wyndham Destinations'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. This is why it's a relief to see Wyndham Destinations earnings per share are up 7.0% per annum over the last five years. Decent historical earnings per share growth suggests Wyndham Destinations has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Wyndham Destinations has lifted its dividend by approximately 27% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Has Wyndham Destinations got what it takes to maintain its dividend payments? Earnings per share have been growing at a steady rate, and Wyndham Destinations paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Wondering what the future holds for Wyndham Destinations? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.