The board of Westwood Holdings Group, Inc. (NYSE:WHG) has announced that it will pay a dividend of $0.15 per share on the 3rd of January. Based on this payment, the dividend yield on the company's stock will be 5.9%, which is an attractive boost to shareholder returns.
Westwood Holdings Group Doesn't Earn Enough To Cover Its Payments
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Westwood Holdings Group's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, EPS could fall by 44.8% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 568%, which is definitely a bit high to be sustainable going forward.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the dividend has gone from $1.48 total annually to $0.60. This works out to be a decline of approximately 8.6% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Has Limited Growth Potential
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 45% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Case in point: We've spotted 5 warning signs for Westwood Holdings Group (of which 1 can't be ignored!) you should know about. 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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