Stock Analysis

Here's What We Like About Wajax's (TSE:WJX) Upcoming Dividend

TSX:WJX
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It looks like Wajax Corporation (TSE:WJX) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 12th of March, you won't be eligible to receive this dividend, when it is paid on the 6th of April.

Wajax's next dividend payment will be CA$0.25 per share, on the back of last year when the company paid a total of CA$1.00 to shareholders. Based on the last year's worth of payments, Wajax has a trailing yield of 5.1% on the current stock price of CA$19.78. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Wajax

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Wajax paid out more than half (63%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Wajax generated enough free cash flow to afford its dividend. Luckily it paid out just 19% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
TSX:WJX Historic Dividend March 7th 2021

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Wajax's earnings have been skyrocketing, up 37% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Wajax's dividend payments per share have declined at 5.7% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Should investors buy Wajax for the upcoming dividend? Wajax's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Wajax is facing. Our analysis shows 4 warning signs for Wajax and you should be aware of them before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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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.
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