Western Forest Products Inc. (TSE:WEF) has announced that it will pay a dividend of CA$0.0125 per share on the 16th of September. Based on this payment, the dividend yield on the company's stock will be 3.3%, which is an attractive boost to shareholder returns.
Western Forest Products' Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Western Forest Products was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
EPS is set to fall by 40.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 15%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Western Forest Products' Dividend Has Lacked Consistency
Looking back, Western Forest Products' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2013, the annual payment back then was CA$0.08, compared to the most recent full-year payment of CA$0.05. The dividend has shrunk at around 5.1% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Looks Likely To Grow
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's encouraging to see that Western Forest Products has been growing its earnings per share at 13% a year over the past five years. Western Forest Products definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Western Forest Products Looks Like A Great Dividend Stock
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Western Forest Products (of which 1 is potentially serious!) you should know about. Is Western Forest Products not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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