Watkin Jones' (LON:WJG) Shareholders Will Receive A Bigger Dividend Than Last Year

Watkin Jones Plc's (LON:WJG) dividend will be increasing to UK£0.029 on 30th of June. Based on the announced payment, the dividend yield for the company will be 3.7%, which is fairly typical for the industry.

See our latest analysis for Watkin Jones

Watkin Jones' Earnings Easily Cover the Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Watkin Jones' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Watkin Jones' Dividend Has Lacked Consistency

Looking back, Watkin Jones' dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the dividend has gone from UK£0.027 to UK£0.058. This means that it has been growing its distributions at 14% per annum over that time. Watkin Jones has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Watkin Jones' earnings per share has shrunk at 26% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Watkin Jones' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Watkin Jones that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.