Don’t buy WestRock Company (NYSE: WRK) for its next dividend without doing these checks

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WestRock Company (NYSE: WRK) is set to trade off dividend within the next 4 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. In other words, investors can buy WestRock shares before November 9 in order to be eligible for the dividend, which will be paid on November 23.

The company’s upcoming dividend is US $ 0.25 per share, continuing the past 12 months when the company distributed a total of US $ 0.96 per share to shareholders. Based on the value of last year’s payouts, the WestRock stock has a sliding return of around 2.1% on the current price of $ 48.42. If you are buying this company for its dividend, you should know if WestRock’s dividend is reliable and sustainable. It is necessary to see if the dividend is covered by the profits and if it increases.

Check out our latest analysis for WestRock

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. WestRock’s dividend is not well covered by earnings as the company lost money last year. This is not a lasting state of affairs, so it would be worth investigating whether profits are expected to pick up. Since the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If the cash income does not cover the dividend, the company would have to pay dividends in cash to the bank or by borrowing money, which is not sustainable in the long run. The good thing is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: WRK Historical Dividend November 4, 2021

Have profits and dividends increased?

When profits fall, dividend companies become much more difficult to analyze and to safely own. If profits fall enough, the company could be forced to cut its dividend. WestRock reported a loss last year, and the general trend suggests that its profits have also declined in recent years, which makes us wonder if the dividend is in jeopardy.

Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Over the past 10 years, WestRock has increased its dividend to around 9.6% per year on average.

Get our latest analysis on the health of WestRock’s balance sheet here.

To summarize

Is WestRock an attractive dividend-paying stock, or rather left on the shelf? It’s hard to get used to WestRock paying a dividend despite news of a loss in the past year. However, at least the dividend was covered by free cash flow. It’s not the most attractive proposition from a dividend standpoint, and we would probably drop this one for now.

With that in mind, if WestRock’s low dividend characteristics don’t scare you, it is worth being aware of the risks involved in this business. For example, we found 3 warning signs for WestRock which we recommend that you consider before investing in the business.

If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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