Warehouse Group (NZSE:WHS) Is Paying Out Less In Dividends Than Last Year

The Warehouse Group Limited's (NZSE:WHS) dividend is being reduced from last year's payment covering the same period to NZ$0.1176 on the 2nd of December. The dividend yield of 6.6% is still a nice boost to shareholder returns, despite the cut.

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Warehouse Group's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Warehouse Group was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

EPS is set to grow by 29.0% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 75% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. There hasn't been much of a change in the dividend over the last 10 years. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.7% per annum over the last five years, which admittedly is a bit slow. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 Warehouse Group (of which 1 is a bit concerning!) you should know about. Is Warehouse Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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