Why Wincanton Passes This Dividend Checklist
The increased yield you get from cash dividends is an essential part of the total profits that can be obtained by investing in stocks. In times of economic uncertainty, such equity payments as Wincanton (LON:WIN) are more important than ever.
With tens of billions of dollars paid out in dividends in the stock market each year, dividend income is an attractive source of yield. But the big challenge for investors is deciding which stocks offer the best balance between an attractive payout and dividend sustainability. After all, the last thing you want is to suffer from a drop in dividends.
To help you find the best possible dividends, there are a few key metrics to remember. Let’s take a look at the dividend paid by Wincanton as an example of what to look for…
1. High (but not excessive) dividend yield
Yield is an important dividend metric because it tells you the percentage of the amount a company pays out in dividends each year relative to its stock price. This makes it easier to compare dividend payouts across the market.
High returns are obviously attractive, but watch out for returns that are too high (usually above 10%) as they can signal trouble. When the market suspects that a company is unable to sustain its dividend, the stock price drops and actually pushes the yield up – and that can be a trap. It is therefore better to be wary of excessive returns.
- Wincanton has a dividend yield of 3.48%.
2. Security of dividends
Attractive high yields obviously turn heads – but it’s important to know that a dividend is affordable. Dividend coverage (similar to payout ratio) is a benchmark measure of a company’s net income relative to the dividend paid to shareholders. It is calculated as earnings per share divided by dividend per share and helps indicate how sustainable a dividend is.
Dividend coverage of less than 1x suggests the company cannot fund the payment from its current year earnings – and could rely on other sources of funds to pay it.
- Wincanton has dividend coverage of 3.09.
3. Dividend Growth
Another important marker for income-oriented investors is a history of dividend growth – and proof that growth will continue. Steady dividend growth may indicate that companies are carefully managing their distribution policies and rewarding their shareholders over time. Rather than aggressively distributing earnings, dividend-growing companies tend to have more modest returns, but are better able to maintain their payouts.
- Wincanton has increased its dividend 4 times in the last 10 years – and the dividend per share is is expected to grow by 14.9% over the coming year.
What does this mean for potential investors?
Yield, growth and security are the three main pillars that underpin some of the most popular dividend investing strategies. But it is important to know that dividend payments can be reduced or canceled very quickly when the outlook changes.
To better understand the dividend outlook for any stock, it’s important to do some research yourself. Indeed, we have identified areas of concern with Wincanton which you can read about here.
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