Yahoo Finance Warner Music Group's (NASDAQ:WMG) Upcoming Dividend Will Be Larger Than Last Year's
The board of Warner Music Group Corp. (NASDAQ:WMG) has announced that it will be increasing its dividend by 6.3% on the 1st of September to $0.17, up from last year's comparable payment of $0.16. This takes the dividend yield to 1.9%, which shareholders will be pleased with.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Warner Music Group's stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for Warner Music Group
Warner Music Group's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Warner Music Group's dividend made up quite a large proportion of earnings but only 59% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Over the next year, EPS is forecast to expand by 80.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Warner Music Group Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of $0.48 in 2020 to the most recent total annual payment of $0.64. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. 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.
Dividend Growth Could Be Constrained
Investors could be attracted to the stock based on the quality of its payment history. Warner Music Group has seen EPS rising for the last three years, at 88% per annum. However, Warner Music Group isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
Our Thoughts On Warner Music Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think Warner Music Group will make a great income stock. 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 Warner Music Group is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Warner Music Group (of which 1 doesn't sit too well with us!) you should know about. Is Warner Music Group not quite the opportunity you were looking for? Why not check out our selection of top 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.
