Washington H. Soul Pattinson's (ASX:SOL) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Washington H. Soul Pattinson and Company Limited (ASX:SOL) has announced that it will be paying its dividend of A$0.58 on the 12th of December, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 2.6% is only a modest boost to shareholder returns.

View our latest analysis for Washington H. Soul Pattinson

Washington H. Soul Pattinson Might Find It Hard To Continue The Dividend

Even a low dividend yield can be attractive if it is sustained for years on end. While Washington H. Soul Pattinson is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Looking forward, earnings per share is forecast to fall by 6.2% over the next year. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.

Washington H. Soul Pattinson Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was A$0.42 in 2012, and the most recent fiscal year payment was A$0.72. This works out to be a compound annual growth rate (CAGR) of approximately 5.5% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Washington H. Soul Pattinson has seen earnings per share falling at 7.5% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Washington H. Soul Pattinson's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Washington H. Soul Pattinson's payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Washington H. Soul Pattinson is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Washington H. Soul Pattinson that investors need to be conscious of moving forward. Is Washington H. Soul Pattinson not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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