Cleanaway Waste Management (ASX:CWY) Is Paying Out A Larger Dividend Than Last Year

The board of Cleanaway Waste Management Limited (ASX:CWY) has announced that the dividend on 7th of October will be increased to A$0.0245, which will be 4.3% higher than last year's payment of A$0.0235 which covered the same period. This takes the annual payment to 1.8% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Cleanaway Waste Management

Cleanaway Waste Management's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the company was paying out 128% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 54%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next year is set to see EPS grow by 185.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 57% which would be quite comfortable going to take the dividend forward.

Cleanaway Waste Management Is Still Building Its Track Record

It is great to see that Cleanaway Waste Management has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2014, the dividend has gone from A$0.015 total annually to A$0.049. This means that it has been growing its distributions at 16% per annum over that time. Cleanaway Waste Management has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. It's not great to see that Cleanaway Waste Management's earnings per share has fallen at approximately 4.1% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Cleanaway Waste Management that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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