Washington H. Soul Pattinson's (ASX:SOL) Upcoming Dividend Will Be Larger Than Last Year's

Washington H. Soul Pattinson and Company Limited (ASX:SOL) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of December to A$0.58. Despite this raise, the dividend yield of 2.5% is only a modest boost to shareholder returns.

Our analysis indicates that SOL is potentially overvalued!

Washington H. Soul Pattinson's Distributions May Be Difficult To Sustain

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. 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.

Over the next year, EPS is forecast to fall by 6.0%. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

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 May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. It's not great to see that Washington H. Soul Pattinson's earnings per share has fallen at approximately 7.8% 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.

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 would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Washington H. Soul Pattinson that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.