The board of Camping World Holdings, Inc. (NYSE:CWH) has announced that it will pay a dividend of $0.625 per share on the 29th of June. This makes the dividend yield 9.3%, which will augment investor returns quite nicely.
Camping World Holdings Doesn't Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 112% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 47%. 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.
Earnings per share is forecast to rise by 16.5% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 144%, which is a bit high and could start applying pressure to the balance sheet.
Camping World Holdings Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of $0.32 in 2017 to the most recent total annual payment of $2.50. This works out to be a compound annual growth rate (CAGR) of approximately 41% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
Camping World Holdings' Dividend Might Lack Growth
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Camping World Holdings has grown earnings per share at 23% per year over the past five years. While EPS is growing rapidly, Camping World Holdings paid out a very high 112% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Camping World Holdings 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.
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