Cleanaway Waste Management Limited’s (ASX:CWY) dividend will be increasing from last year’s payment of the same period to A$0.032 on 7th of October. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.
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While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Cleanaway Waste Management’s dividend was only 68% of earnings, however it was paying out 110% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Over the next year, EPS is forecast to expand by 58.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.
Check out our latest analysis for Cleanaway Waste Management
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was A$0.014 in 2015, and the most recent fiscal year payment was A$0.064. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. It is good to see that there has been strong dividend growth, and that there haven’t been any cuts for a long time.
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. We are encouraged to see that Cleanaway Waste Management has grown earnings per share at 9.8% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
In summary, while it’s always good to see the dividend being raised, we don’t think Cleanaway Waste Management’s payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we’ve picked out 1 warning sign for Cleanaway Waste Management that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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