Understanding the dividend of a company can be a valuable asset in making an informed decision to invest, stay invested or not to invest.
It is important for an investor to consider the benefits that dividends can offer and how easy it is to include dividend paying stocks in any portfolio. Some of the advantages a quality dividend stock can offer are attractive returns, less volatility and over time, can provide increasing yields. These are some aspects that a quality dividend stock can help provide to a portfolio.
In this article, I will be analyzing Waste Management's (WM), historical dividend payout, earnings per share growth rate, and historical dividend payout ratios. Based on these criteria, we should get a good understanding of the history of the dividend and get some estimates of what to expect in the future.
Since 2004, Waste Management has been paying a consistent dividend. From the time the company began paying regular dividend payments in 2004, Waste Management has had a steady history of dividend increases. The company has increased it dividend every year since the inception of a regular dividend payout.
Below is a Chart of the dividend payout per year, for Waste Managements common shares.
The current dividend payment as of November 28, 2012 for Waste Management is $.355 USD per common share. The current expected payout for total 2012 is $1.42. In 2012, a consensus of 13 analysis at Bloomberg Businessweek are stating that Waste Management will have an EPS of $2.10. As Bloomberg Businessweek is estimating Waste Management's 2012 revenue at $13.6 billion, this would give the company a net profit margin of 7.25% and a projected net income of $985.53 million. This would be slight increase in revenue over 2011 but a slight decrease in the net profit margin over 2011. In 2012, with a dividend payout of $1.42 and an EPS of $2.10, Waste Management would have a payout ratio in 2012 of 67.62%.
With a payout ratio of 67.62% or .6762, Waste Management should be able to maintain its 2012 payout dividend of $1.42. This is a 4.41% increase over 2011.
Looking at the two charts above you can see that the company's earnings per share has not increased since 2005, while the dividend has been increasing. This does pose a question. If the earnings do not increase over the next few years how long can the company keep raising its dividend?
Looking forward to 2013, if the company is able to realize estimated sales at $13.2 billion and an estimated EPS of $2.29, this would give the company a payout ratio of 62.00%, based on a $1.42 yearly payout. So the company should be able to maintain its current dividend moving forward.
Based on analyzing many of the company's financial ratios, Waste Management looks to be very strong regarding its financial health. The company seems to have an handle on its debt as described in my article Analyzing Waste Management's Debt And Risk, but if the dividend is to continue growing at the same pace over the next few years the company will need to address the issue of flat growth. Please view my articles Waste Management: Profitability Analysis and Waste Management: Inside The Numbers for more information on the stock.
Based on the above analysis and the information listed in my previous articles, the company should be able to maintain its current dividend of $0.355. If estimates continue as expected, Waste Management should be able to continue its trend of dividend growth at least for another year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.