Worley (ASX:WOR) Will Pay A Dividend Of AU$0.25

Worley Limited (ASX:WOR) will pay a dividend of AU$0.25 on the 30th of March. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

View our latest analysis for Worley

Worley Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the dividend made up 89% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Earnings per share is forecast to rise by 102.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 96%, which probably can't continue putting some pressure on the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was AU$0.76, compared to the most recent full-year payment of AU$0.50. The dividend has shrunk at around 4.1% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Worley's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Worley has seen EPS rising for the last five years, at 11% per annum. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Worley that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.