Yahoo Finance Wesfarmers Limited (ASX:WES) Is About To Go Ex-Dividend, And It Pays A 3.0% Yield
Wesfarmers Limited (ASX:WES) stock is about to trade ex-dividend in 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Wesfarmers' shares on or after the 20th of February, you won't be eligible to receive the dividend, when it is paid on the 27th of March.
The company's next dividend payment will be AU$0.91 per share, and in the last 12 months, the company paid a total of AU$1.91 per share. Calculating the last year's worth of payments shows that Wesfarmers has a trailing yield of 3.0% on the current share price of AU$62.95. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Wesfarmers
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 88% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Wesfarmers's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Wesfarmers's earnings per share have risen 12% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Wesfarmers dividends are largely the same as they were 10 years ago.
The Bottom Line
From a dividend perspective, should investors buy or avoid Wesfarmers? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Wesfarmers is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Wesfarmers's dividend merits.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for Wesfarmers that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking 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.
