Wyndham Destinations, Inc. (NYSE:WYND) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 30th of September.
Wyndham Destinations’s next dividend payment will be US$0.45 per share, and in the last 12 months, the company paid a total of US$1.80 per share. Calculating the last year’s worth of payments shows that Wyndham Destinations has a trailing yield of 4.0% on the current share price of $45.43. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Wyndham Destinations can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Fortunately Wyndham Destinations’s payout ratio is modest, at just 38% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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 earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Wyndham Destinations earnings per share are up 7.0% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we’d take this as a tacit signal that the company’s growth prospects are slowing.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Wyndham Destinations has delivered 27% dividend growth per year on average over the past ten years. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Wyndham Destinations for the upcoming dividend? Earnings per share have been growing at a steady rate, and Wyndham Destinations paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Curious what other investors think of Wyndham Destinations? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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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