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Waterloo Brewing Ltd. (TSE:WBR) has announced that it will pay a dividend of CA$0.028 per share on the 29th of October. This means that the annual payment will be 1.6% of the current stock price, which is in line with the average for the industry.
Waterloo Brewing's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.
Earnings per share could rise by 8.2% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 87%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Waterloo Brewing Is Still Building Its Track Record
It is great to see that Waterloo Brewing has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2015, the first annual payment was CA$0.048, compared to the most recent full-year payment of CA$0.11. This means that it has been growing its distributions at 15% per annum 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.
We Could See Waterloo Brewing's Dividend Growing
Investors could be attracted to the stock based on the quality of its payment history. Waterloo Brewing has seen EPS rising for the last five years, at 8.2% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
Waterloo Brewing's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Waterloo Brewing (3 are a bit concerning!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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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