Zurn Elkay Water Solutions (NYSE:ZWS) Has Announced A Dividend Of $0.09

Zurn Elkay Water Solutions Corporation's (NYSE:ZWS) investors are due to receive a payment of $0.09 per share on 7th of March. The dividend yield is 0.9% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Zurn Elkay Water Solutions

Zurn Elkay Water Solutions' Payment Could Potentially Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Zurn Elkay Water Solutions' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 68.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.

Zurn Elkay Water Solutions' Dividend Has Lacked Consistency

Looking back, Zurn Elkay Water Solutions' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2020, the dividend has gone from $0.32 total annually to $0.36. This implies that the company grew its distributions at a yearly rate of about 2.4% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Zurn Elkay Water Solutions' earnings per share has shrunk at 14% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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.

Our Thoughts On Zurn Elkay Water Solutions' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 instance, we've picked out 1 warning sign for Zurn Elkay Water Solutions that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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