Wilson Bayly Holmes-Ovcon (JSE:WBO) Is Increasing Its Dividend To ZAR3.20

Wilson Bayly Holmes-Ovcon Limited (JSE:WBO) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of October to ZAR3.20. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.

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Wilson Bayly Holmes-Ovcon's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Wilson Bayly Holmes-Ovcon was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 48.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 17% by next year, which is in a pretty sustainable range.

See our latest analysis for Wilson Bayly Holmes-Ovcon

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ZAR3.68 in 2015, and the most recent fiscal year payment was ZAR6.00. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Wilson Bayly Holmes-Ovcon has been growing its earnings per share at 37% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Wilson Bayly Holmes-Ovcon Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Wilson Bayly Holmes-Ovcon is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Wilson Bayly Holmes-Ovcon that investors need to be conscious of moving forward. Is Wilson Bayly Holmes-Ovcon not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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