Winmark (NASDAQ:WINA) Has Announced That It Will Be Increasing Its Dividend To $0.96

Winmark Corporation (NASDAQ:WINA) will increase its dividend on the 2nd of June to $0.96, which is 6.7% higher than last year's payment from the same period of $0.90. This will take the annual payment to 3.2% of the stock price, which is above what most companies in the industry pay.

We've discovered 3 warning signs about Winmark. View them for free.

Estimates Indicate Winmark's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. But before making this announcement, Winmark's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 90% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Over the next year, EPS is forecast to expand by 3.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 116%, which is a bit high and could start applying pressure to the balance sheet.

View our latest analysis for Winmark

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.24 in 2015, and the most recent fiscal year payment was $11.10. This means that it has been growing its distributions at 47% per annum over that time. Winmark has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Winmark has grown earnings per share at 6.5% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Winmark's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Winmark's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Winmark is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Winmark (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.