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The board of Cleanaway Waste Management Limited (ASX:CWY) has announced that it will be increasing its dividend on the 5th of October to AU$0.024. This makes the dividend yield 2.5%, which is above the industry average.
Cleanaway Waste Management Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Cleanaway Waste Management's earnings. This means that a large portion of its earnings are being retained to grow the business.
Earnings per share is forecast to rise by 10.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 105%, which probably can't continue putting some pressure on the balance sheet.
Cleanaway Waste Management Doesn't Have A Long Payment History
It is great to see that Cleanaway Waste Management has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2014, the first annual payment was AU$0.015, compared to the most recent full-year payment of AU$0.047. This means that it has been growing its distributions at 18% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. Cleanaway Waste Management has seen EPS rising for the last five years, at 20% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
We Really Like Cleanaway Waste Management's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 12 analysts we track are forecasting for Cleanaway Waste Management for free with public analyst estimates for the company. We have also put together a list of global stocks with a solid dividend.
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.
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