Stock Analysis

Canadian Western Bank (TSE:CWB) Has Announced That It Will Be Increasing Its Dividend To CA$0.30

TSX:CWB
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Canadian Western Bank (TSE:CWB) has announced that it will be increasing its dividend on the 6th of January to CA$0.30. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.

View our latest analysis for Canadian Western Bank

Canadian Western Bank's Earnings Easily Cover the Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Canadian Western Bank's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 1.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
TSX:CWB Historic Dividend December 9th 2021

Canadian Western Bank Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from CA$0.52 in 2011 to the most recent annual payment of CA$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 8.7% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Canadian Western Bank has seen EPS rising for the last five years, at 11% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Canadian Western Bank's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 3 warning signs for Canadian Western Bank (of which 1 doesn't sit too well with us!) you should know about. 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.