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Don't Buy WestRock Company (NYSE:WRK) For Its Next Dividend Without Doing These Checks
Readers hoping to buy WestRock Company (NYSE:WRK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 10th of February in order to be eligible for this dividend, which will be paid on the 23rd of February.
WestRock's next dividend payment will be US$0.20 per share. Last year, in total, the company distributed US$0.80 to shareholders. Based on the last year's worth of payments, WestRock has a trailing yield of 1.9% on the current stock price of $43.08. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for WestRock
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. WestRock paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. WestRock reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, WestRock has lifted its dividend by approximately 10% a year on average.
Get our latest analysis on WestRock's balance sheet health here.
To Sum It Up
From a dividend perspective, should investors buy or avoid WestRock? It's hard to get used to WestRock paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
So if you're still interested in WestRock despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 3 warning signs with WestRock (at least 1 which is significant), and understanding these should be part of your investment process.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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What are the risks and opportunities for WestRock?
WestRock Company, together with its subsidiaries, provides fiber-based paper and packaging solutions in North America, South America, Europe, Asia, and Australia.
Rewards
Trading at 60% below our estimate of its fair value
Earnings are forecast to grow 6.1% per year
Earnings grew by 12.7% over the past year
Risks
Significant insider selling over the past 3 months
Large one-off items impacting financial results
Has a high level of debt
Further research on
WestRock
This article by Simply Wall St is general in nature. 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.
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About NYSE:WRK
WestRock
WestRock Company, together with its subsidiaries, provides fiber-based paper and packaging solutions in North America, South America, Europe, Asia, and Australia.
Undervalued average dividend payer.
