It looks like Waste Connections, Inc. (NYSE:WCN) is about to go ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 8th of November will not receive the dividend, which will be paid on the 26th of November.
Waste Connections’s next dividend payment will be US$0.2 per share. Last year, in total, the company distributed US$0.7 to shareholders. Based on the last year’s worth of payments, Waste Connections stock has a trailing yield of around 0.8% on the current share price of $89.97. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Waste Connections
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. Waste Connections paid out a comfortable 30% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What’s good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.
It’s positive to see that Waste Connections’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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Waste Connections’s earnings per share have been growing at 15% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past three years, Waste Connections has increased its dividend at approximately 24% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Waste Connections an attractive dividend stock, or better left on the shelf? Waste Connections has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There’s a lot to like about Waste Connections, and we would prioritise taking a closer look at it.
Wondering what the future holds for Waste Connections? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.