Stock Analysis

Canadian Western Bank (TSE:CWB) Will Pay A Larger Dividend Than Last Year At CA$0.31

TSX:CWB
Source: Shutterstock

The board of Canadian Western Bank (TSE:CWB) has announced that it will be increasing its dividend on the 23rd of June to CA$0.31. This makes the dividend yield about the same as the industry average at 3.9%.

View our latest analysis for Canadian Western Bank

Canadian Western Bank's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. 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.

Over the next year, EPS is forecast to fall by 1.9%. If the dividend continues along recent trends, we estimate the payout ratio could be 35%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

historic-dividend
TSX:CWB Historic Dividend June 3rd 2022

Canadian Western Bank Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was CA$0.56, compared to the most recent full-year payment of CA$1.24. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. 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.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Canadian Western Bank has impressed us by growing EPS at 11% per year over the past five years. 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

Overall, we always like to see the dividend being raised, but we don't think Canadian Western Bank will make a great income stock. While Canadian Western Bank is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Canadian Western Bank (of which 1 is a bit unpleasant!) you should know about. Is Canadian Western Bank not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Canadian Western Bank is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.