Westwood Holdings Group, Inc.'s (NYSE:WHG) investors are due to receive a payment of $0.15 per share on 3rd of January. This makes the dividend yield 5.5%, which will augment investor returns quite nicely.
Westwood Holdings Group Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Westwood Holdings Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to fall by 44.3% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 534%, which could put the dividend in jeopardy if the company's earnings don't improve.
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 2012, the dividend has gone from $1.48 total annually to $0.60. Doing the maths, this is a decline of about 8.6% per year. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Westwood Holdings Group's earnings per share has shrunk at 44% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Westwood Holdings Group's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 5 warning signs for Westwood Holdings Group you should be aware of, and 1 of them is significant. Is Westwood Holdings Group not quite the opportunity you were looking for? Why not check out our selection of top 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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