Winmark's (NASDAQ:WINA) Dividend Will Be Increased To $0.90

The board of Winmark Corporation (NASDAQ:WINA) has announced that it will be paying its dividend of $0.90 on the 3rd of June, an increased payment from last year's comparable dividend. This takes the dividend yield to 3.4%, which shareholders will be pleased with.

See our latest analysis for Winmark

Winmark Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Winmark was paying a whopping 106% as a dividend, but this only made up 28% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to grow by 7.9% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 130%, which probably can't continue without starting to put some pressure on the balance sheet.

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Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $0.20 in 2014 to the most recent total annual payment of $13.00. This implies that the company grew its distributions at a yearly rate of about 52% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See Winmark's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Winmark has been growing its earnings per share at 7.9% a year over the past five years. Winmark definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Winmark's Dividend

Overall, we always like to see the dividend being raised, but we don't think Winmark will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Winmark 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Winmark you should be aware of, and 1 of them shouldn't be ignored. 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.