Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see WVS Financial Corp. (NASDAQ:WVFC) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 9th of August in order to receive the dividend, which the company will pay on the 22nd of August.
WVS Financial’s upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.48 per share to shareholders. Calculating the last year’s worth of payments shows that WVS Financial has a trailing yield of 2.8% on the current share price of $17.35. If you buy this business for its dividend, you should have an idea of whether WVS Financial’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. WVS Financial is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s encouraging to see WVS Financial has grown its earnings rapidly, up 24% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. WVS Financial’s dividend payments per share have declined at 2.8% per year on average over the past 10 years, which is uninspiring. It’s unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We’d hope it’s because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Is WVS Financial worth buying for its dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. WVS Financial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
Keen to explore more data on WVS Financial’s financial performance? Check out our visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.