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

The board of Bath & Body Works, Inc. (NYSE:BBWI) has announced that it will pay a dividend on the 7th of March, with investors receiving $0.20 per share. Based on this payment, the dividend yield on the company's stock will be 2.2%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Bath & Body Works

Bath & Body Works' Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Bath & Body Works' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 0.9%. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $1.36 in 2015, and the most recent fiscal year payment was $0.80. The dividend has shrunk at around 5.2% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

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 has seen EPS rising for the last five years, at 26% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Bath & Body Works' Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Bath & Body Works you should be aware of, and 1 of them makes us a bit uncomfortable. Is Bath & Body Works not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.