WEG (BVMF:WEGE3) Has Announced A Dividend Of R$0.027

WEG S.A. (BVMF:WEGE3) has announced that it will pay a dividend of R$0.027 per share on the 16th of March. The dividend yield will be 1.7% based on this payment which is still above the industry average.

Check out our latest analysis for WEG

WEG's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, WEG's dividend was only 51% of earnings, however it was paying out 97% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

EPS is set to fall by 0.3% over the next 12 months. If recent patterns in the dividend continue, we could see the payout ratio reaching 84% in the next 12 months, which is on the higher end of the range we would say is sustainable.

WEG Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was R$0.073 in 2011, and the most recent fiscal year payment was R$0.30. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see WEG has been growing its earnings per share at 24% a year over the past five years. WEG is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On WEG's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about WEG's payments, as there could be some issues with sustaining them into the future. While WEG is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 11 analysts we track are forecasting for WEG for free with public analyst estimates for the company. We have also put together a list of global stocks with a solid dividend.

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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.