Greenbrier Companies' (NYSE:GBX) Dividend Will Be Increased To $0.30

The Greenbrier Companies, Inc. (NYSE:GBX) has announced that it will be increasing its dividend from last year's comparable payment on the 8th of August to $0.30. This will take the annual payment to 2.8% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Greenbrier Companies' stock price has increased by 43% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Greenbrier Companies

Greenbrier Companies' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Greenbrier Companies was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 30.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

Greenbrier Companies Doesn't Have A Long Payment History

It is great to see that Greenbrier Companies has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of $0.60 in 2014 to the most recent total annual payment of $1.20. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Greenbrier Companies to be a consistent dividend paying stock.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Greenbrier Companies' earnings per share has shrunk at 17% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Greenbrier Companies' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Greenbrier Companies (1 doesn't sit too well with us!) that you should be aware of before investing. Is Greenbrier Companies not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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