Winnebago Industries, Inc.'s (NYSE:WGO) dividend will be increasing from last year's payment of the same period to $0.27 on 28th of September. The payment will take the dividend yield to 1.9%, which is in line with the average for the industry.

See our latest analysis for Winnebago Industries

Winnebago Industries' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Winnebago Industries' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 28.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 9.8%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Winnebago Industries Is Still Building Its Track Record

It is great to see that Winnebago Industries has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2014, the dividend has gone from $0.36 total annually to $1.08. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Winnebago Industries has impressed us by growing EPS at 44% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Winnebago Industries 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. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Winnebago Industries (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.