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The board of Wabash National Corporation (NYSE:WNC) has announced that it will pay a dividend on the 27th of October, with investors receiving $0.08 per share. This payment means that the dividend yield will be 1.7%, which is around the industry average.
Check out our latest analysis for Wabash National
Wabash National's Dividend Is Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Wabash National's dividend made up quite a large proportion of earnings but only 56% of free cash flows. This leaves plenty of cash for reinvestment into the business.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 16%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Wabash National Is Still Building Its Track Record
Wabash National's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of $0.24 in 2016 to the most recent total annual payment of $0.32. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though Wabash National's EPS has declined at around 24% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Wabash National (1 is potentially serious!) that you should be aware of before investing. Is Wabash National not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.