Camping World Holdings, Inc. (NYSE:CWH) is reducing its dividend from last year's comparable payment to $0.125 on the 29th of September. This means that the annual payment will be 2.3% of the current stock price, which is in line with the average for the industry.
Camping World Holdings Doesn't Earn Enough To Cover Its Payments
Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Camping World Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
The next 12 months is set to see EPS grow by 66.2%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 193% over the next year.
Camping World Holdings' Dividend Has Lacked Consistency
Looking back, Camping World Holdings' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from $0.32 total annually to $0.50. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend's Growth Prospects Are Limited
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Camping World Holdings' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Paying more than double what it is paying out, and not showing a track record of being able to grow earnings, we can only see dividend cuts in the future.
Our Thoughts On Camping World Holdings' Dividend
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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. We don't think Camping World Holdings is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Camping World Holdings has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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