Watkin Jones' (LON:WJG) Dividend Is Being Reduced To £0.045

Watkin Jones Plc (LON:WJG) has announced that on 2nd of March, it will be paying a dividend of£0.045, which a reduction from last year's comparable dividend. However, the dividend yield of 5.2% is still a decent boost to shareholder returns.

Check out our latest analysis for Watkin Jones

Watkin Jones' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 46%, which is in a comfortable range for us.

Watkin Jones' Dividend Has Lacked Consistency

It's comforting to see that Watkin Jones has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was £0.0266 in 2016, and the most recent fiscal year payment was £0.058. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 18% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We're Not Big Fans Of Watkin Jones' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Watkin Jones (of which 2 are a bit concerning!) you should know about. Is Watkin Jones not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.