Reliance Worldwide (ASX:RWC) Has Announced A Dividend Of $0.0378

Reliance Worldwide Corporation Limited's (ASX:RWC) investors are due to receive a payment of $0.0378 per share on 4th of October. This means the annual payment is 2.7% of the current stock price, which is above the average for the industry.

View our latest analysis for Reliance Worldwide

Reliance Worldwide's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Reliance Worldwide was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 88.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

Reliance Worldwide's Dividend Has Lacked Consistency

Looking back, Reliance Worldwide's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was $0.0441 in 2016, and the most recent fiscal year payment was $0.095. This means that it has been growing its distributions at 10% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Reliance Worldwide May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 3.4% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Reliance Worldwide could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Reliance Worldwide's Dividend

Overall, we think that Reliance Worldwide could make a reasonable income stock, even though it did cut the dividend this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Reliance Worldwide that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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