Is Great Western Bancorp, Inc. (NYSE:GWB) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
With a five-year payment history and a 5.0% yield, many investors probably find Great Western Bancorp intriguing. We’d agree the yield does look enticing. The company also returned around 9.1% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Remember that the recent share price drop will make Great Western Bancorp’s yield look higher, even though recent events might have impacted the company’s prospects. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. Although Great Western Bancorp pays a dividend, it was loss-making during the past year. When a financial business is loss-making and pays a dividend, the dividend is not covered by profits. Its important that investors assess the quality of the company’s assets and whether it can return to generating a positive income.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well – nasty. Looking at the data, we can see that Great Western Bancorp has been paying a dividend for the past five years. During the past five-year period, the first annual payment was US$0.48 in 2015, compared to US$0.60 last year. Dividends per share have grown at approximately 4.6% per year over this time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.
We’re glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don’t think this is an attractive combination.
Dividend Growth Potential
With a relatively unstable dividend, it’s even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there’s a good chance of bigger dividends in future? Great Western Bancorp’s EPS have fallen by approximately 17% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Great Western Bancorp’s earnings per share, which support the dividend, have been anything but stable.
To summarise, shareholders should always check that Great Western Bancorp’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, it’s not great to see a dividend being paid despite the company being unprofitable over the last year. Earnings per share are down, and Great Western Bancorp’s dividend has been cut at least once in the past, which is disappointing. In short, we’re not keen on Great Western Bancorp from a dividend perspective. Businesses can change, but we’ve spotted a few too many concerns with this one to get comfortable.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we’ve picked out 2 warning signs for Great Western Bancorp that investors should know about before committing capital to this stock.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
When trading Great Western Bancorp or any other investment, use the platform considered by many to be the Professional’s Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
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. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.