Yahoo Finance Don't Race Out To Buy Kennedy-Wilson Holdings, Inc. (NYSE:KW) Just Because It's Going Ex-Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Kennedy-Wilson Holdings, Inc. (NYSE:KW) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Kennedy-Wilson Holdings investors that purchase the stock on or after the 29th of December will not receive the dividend, which will be paid on the 5th of January.
The company's upcoming dividend is US$0.24 a share, following on from the last 12 months, when the company distributed a total of US$0.96 per share to shareholders. Last year's total dividend payments show that Kennedy-Wilson Holdings has a trailing yield of 6.2% on the current share price of $15.54. If you buy this business for its dividend, you should have an idea of whether Kennedy-Wilson Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Kennedy-Wilson Holdings
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kennedy-Wilson Holdings paid out 165% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out dividends equivalent to 309% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Cash is slightly more important than profit from a dividend perspective, but given Kennedy-Wilson Holdings's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see how much of its profit Kennedy-Wilson Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Kennedy-Wilson Holdings has grown its earnings rapidly, up 125% a year for the past five years. Earnings per share are increasing at a rapid rate, but the company is paying out more than we think is sustainable, based on current earnings. Companies that pay out more than they earned while growing rapidly, can find themselves short of cash in a few years when growth slows.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Kennedy-Wilson Holdings has increased its dividend at approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Kennedy-Wilson Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. Bottom line: Kennedy-Wilson Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that being said, if you're still considering Kennedy-Wilson Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Kennedy-Wilson Holdings is showing 5 warning signs in our investment analysis, and 2 of those can't be ignored...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
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