Canadian Western Bank (TSE:CWB) has announced that it will pay a dividend of CA$0.29 per share on the 24th of June. This means the dividend yield will be fairly typical at 3.2%.
Canadian Western Bank's Payment Has Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Canadian Western Bank was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 10.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.
Canadian Western Bank Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from CA$0.44 in 2011 to the most recent annual payment of CA$1.16. This means that it has been growing its distributions at 10% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Has Growth Potential
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see Canadian Western Bank has been growing its earnings per share at 6.4% a year over the past five years. Canadian Western Bank definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Canadian Western Bank's payments, as there could be some issues with sustaining them into the future. While Canadian Western Bank is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.
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. For example, we've picked out 1 warning sign for Canadian Western Bank that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.