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The board of Wajax Corporation (TSE:WJX) has announced that it will pay a dividend on the 2nd of April, with investors receiving CA$0.35 per share. Based on this payment, the dividend yield on the company's stock will be 7.7%, which is an attractive boost to shareholder returns.
See our latest analysis for Wajax
Wajax's Future Dividend Projections Appear Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Wajax's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
EPS is set to fall by 0.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 67%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from CA$2.40 total annually to CA$1.40. This works out to be a decline of approximately 5.2% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Wajax May Find It Hard To Grow The Dividend
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Wajax hasn't seen much change in its earnings per share over the last five years.
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.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Wajax (of which 1 can't be ignored!) you should know about. Is Wajax not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.