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The board of Zurn Elkay Water Solutions Corporation (NYSE:ZWS) has announced that it will pay a dividend on the 7th of March, with investors receiving $0.09 per share. Including this payment, the dividend yield on the stock will be 1.0%, which is a modest boost for shareholders' returns.
See our latest analysis for Zurn Elkay Water Solutions
Zurn Elkay Water Solutions' Future Dividend Projections Appear Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Zurn Elkay Water Solutions' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 54.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.
Zurn Elkay Water Solutions' Dividend Has Lacked Consistency
Zurn Elkay Water Solutions has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of $0.32 in 2020 to the most recent total annual payment of $0.36. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend Has Limited Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 11% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
Our Thoughts On Zurn Elkay Water Solutions' Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.