The board of Waterloo Brewing Ltd. (TSE:WBR) has announced that it will pay a dividend of CA$0.0304 per share on the 3rd of August. This means that the annual payment will be 2.7% of the current stock price, which is in line with the average for the industry.
Waterloo Brewing Doesn't Earn Enough To Cover Its Payments
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before this announcement, Waterloo Brewing was paying out 84% of earnings, but a comparatively small 56% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
EPS is set to grow by 3.7% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 101%, which is a bit high and could start applying pressure to the balance sheet.
Waterloo Brewing Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. Since 2015, the dividend has gone from CA$0.048 total annually to CA$0.122. This means that it has been growing its distributions at 14% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 3.7% per annum over the last five years, which admittedly is a bit slow. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
Our Thoughts On Waterloo Brewing's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Waterloo Brewing's payments, as there could be some issues with sustaining them into the future. 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. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Waterloo Brewing that investors should know about before committing capital to this stock. 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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