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The board of Bath & Body Works, Inc. (NYSE:BBWI) has announced that it will pay a dividend of $0.20 per share on the 6th of December. This makes the dividend yield 2.7%, which will augment investor returns quite nicely.
View our latest analysis for Bath & Body Works
Bath & Body Works' Projected Earnings Seem Likely To Cover Future Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, Bath & Body Works' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to fall by 2.2%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 17%, which is comfortable for the company to continue in the future.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from $1.36 total annually to $0.80. The dividend has shrunk at around 5.2% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Bath & Body Works has grown earnings per share at 15% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Bath & Body Works' prospects of growing its dividend payments in the future.
We Really Like Bath & Body Works' Dividend
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Bath & Body Works has 4 warning signs (and 2 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.