Assessing the Sustainability of Watsco Inc's Upcoming Dividend
Watsco Inc (WSO, Financial) recently announced a dividend of $2.45 per share, payable on 2024-01-31, with the ex-dividend date set for 2024-01-16. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's look into Watsco Inc's dividend performance and assess its sustainability.
What Does Watsco Inc Do?
Watsco is the largest heating, ventilation, air-conditioning, and refrigeration products distributor in North America. The company primarily operates in the United States (91% of 2022 revenue) with significant exposure in the Sunbelt states. Watsco also has operations in Canada (5% of sales) and Latin America and the Caribbean (4% of sales). The company's customer base consists of more than 120,000 dealers and contractors that serve the replacement and new construction HVACR markets for residential and light commercial applications.
A Glimpse at Watsco Inc's Dividend History
Watsco Inc has maintained a consistent dividend payment record since 1985. Dividends are currently distributed on a quarterly basis.
Watsco Inc has increased its dividend each year since 2013. The stock is thus listed as a dividend achiever, an honor that is given to companies that have increased their dividend each year for at least the past 11 years. Below is a chart showing annual Dividends Per Share for tracking historical trends.
Breaking Down Watsco Inc's Dividend Yield and Growth
As of today, Watsco Inc currently has a 12-month trailing dividend yield of 2.40% and a 12-month forward dividend yield of 2.40%. This suggests an expectation of same dividend payments over the next 12 months.
Over the past three years, Watsco Inc's annual dividend growth rate was 10.10%. Extended to a five-year horizon, this rate increased to 12.40% per year. And over the past decade, Watsco Inc's annual dividends per share growth rate stands at an impressive 19.50%.
Based on Watsco Inc's dividend yield and five-year growth rate, the 5-year yield on cost of Watsco Inc stock as of today is approximately 4.31%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-09-30, Watsco Inc's dividend payout ratio is 0.63.
Watsco Inc's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Watsco Inc's profitability 8 out of 10 as of 2023-09-30, suggesting good profitability prospects. The company has reported positive net income for each of year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Watsco Inc's growth rank of 8 out of 10 suggests that the company's growth trajectory is good relative to its competitors.
Revenue is the lifeblood of any company, and Watsco Inc's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Watsco Inc's revenue has increased by approximately 14.00% per year on average, a rate that outperforms approximately 71.13% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Watsco Inc's earnings increased by approximately 29.80% per year on average, a rate that outperforms approximately 64.41% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of 18.90%, which outperforms approximately 60.47% of global competitors.
Next Steps
In conclusion, Watsco Inc's forthcoming dividend payment is backed by a strong history of consistent dividend growth. The company's prudent payout ratio, robust profitability rank, and solid growth metrics collectively suggest a sustainable dividend policy going forward. For value investors, Watsco Inc presents a compelling case for those seeking stable income with the potential for growth. As the company continues to navigate the dynamic HVACR market, it stands as a testament to the value of dividend investing in a well-established industry. Will Watsco Inc continue to be a reliable source of dividends for years to come? Only time will tell, but the current indicators are promising.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
