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WD-40 Company (NASDAQ:WDFC) will increase its dividend on the 31st of January to $0.94, which is 6.8% higher than last year's payment from the same period of $0.88. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.
Check out our latest analysis for WD-40
WD-40's Payment Could Potentially Have Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, WD-40's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 9.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which is in the range that makes us comfortable with the sustainability of the dividend.
WD-40 Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.36 in 2014 to the most recent total annual payment of $3.52. This means that it has been growing its distributions at 10.0% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 4.9% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 4.9% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.
WD-40 Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for WD-40 that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.