RWS Holdings plc's( LON:RWS ) investors are due to receive a payment of £0.046 per share on 20th of February. However, the dividend yield of 8.1% is still a decent boost to shareholder returns.
RWS Holdings' Future Dividend Projections Seem Positive
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. RWS Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 3.7%, so there isn't too much pressure on the dividend.
See our latest analysis for RWS Holdings
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. Since 2015, the annual payment back then was £0.0458, compared to the most recent full-year payment of £0.0705. This implies that the company grew its distributions at a yearly rate of about 4.4% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth Potential Is Shaky
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. Earnings per share has been sinking by 42% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
The Dividend Could Prove To Be Unreliable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for RWS Holdings that you should be aware of before investing. Is RWS Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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