Bath & Body Works (NYSE:BBWI) Is Paying Out A Dividend Of $0.20

Bath & Body Works, Inc. (NYSE:BBWI) will pay a dividend of $0.20 on the 1st of December. This payment means that the dividend yield will be 2.5%, which is around the industry average.

Check out our latest analysis for Bath & Body Works

Bath & Body Works' Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Bath & Body Works was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 37.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 dividend has gone from an annual total of $5.00 in 2013 to the most recent total annual payment of $0.80. This works out to a decline of approximately 84% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Bath & Body Works hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Bath & Body Works' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bath & Body Works' payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Bath & Body Works has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Bath & Body Works not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.