Zurn Elkay Water Solutions' (NYSE:ZWS) Dividend Will Be $0.07

The board of Zurn Elkay Water Solutions Corporation (NYSE:ZWS) has announced that it will pay a dividend on the 7th of September, with investors receiving $0.07 per share. This means the annual payment will be 1.0% of the current stock price, which is lower than the industry average.

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 Zurn Elkay Water Solutions' stock price has increased by 30% 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 Zurn Elkay Water Solutions

Zurn Elkay Water Solutions' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last payment made up 78% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 195.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Zurn Elkay Water Solutions' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2020, the annual payment back then was $0.32, compared to the most recent full-year payment of $0.28. This works out to be a decline of approximately 4.4% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 30% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Zurn Elkay Water Solutions' payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Zurn Elkay Water Solutions that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.