Wincanton plc (LON:WIN) will increase its dividend on the 5th of August to UK£0.08, which is 6.7% higher than last year. The announced payment will take the dividend yield to 2.9%, which is in line with the average for the industry.
Wincanton's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. However, Wincanton's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 2.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.
Wincanton's Dividend Has Lacked Consistency
Looking back, Wincanton's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the first annual payment was UK£0.055, compared to the most recent full-year payment of UK£0.12. This means that it has been growing its distributions at 14% per annum over that time. Wincanton has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.5% per year. While EPS growth is quite low, Wincanton has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On Wincanton's Dividend
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
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. For example, we've picked out 2 warning signs for Wincanton that investors should know about before committing capital to this stock. Is Wincanton not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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