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Could Watsco (NYSE: WSO) Cut its Dividend?

Written by Wealth Daily Research Team
Posted July 9, 2020

Today is Thursday, July 9, 2020, and this is your daily dividend safety update. Today we’re looking at Watsco (NYSE: WSO) stock to see whether its 3.54% dividend is safe.

High-yield dividend stocks can be very useful to investors of all ages. Younger investors can use dividend reinvestment plans (DRIPs) to grow their portfolios exponentially over time, while retirees can use them to generate passive income. 

In both cases, it’s preferable to buy dividend stocks with steady or rising dividends – and avoid those that cut their dividends. 

Let’s look at the payout ratio, cash flow growth, and dividend history of Watsco to gauge the probability of a dividend cut in the next few years.

Payout Ratio (Dividends/Earnings)

Watsco has a payout ratio of 100.5%. That’s too high for our liking. Payout ratio equals dividends per share divided by earnings per share. Payout ratios near or over 100% indicate that the company might not be able to afford its dividend — or that it might have to borrow money to pay it. 

Cash Flow Growth Year-Over-Year

Watsco has not grown its cash flow in the last year. That’s a bad omen for dividend investors. No cash flow means no dividend, so if cash flow isn’t growing, that’s a problem for us. 

Dividend History & Recent Cuts

Watsco has not cut its dividend in the recent past. That’s a good sign. It’s not a guarantee that the company will never cut its dividend, but companies that have cut their dividends recently are generally more likely to cut them again.

The Takeaway

Watsco stock has failed 2 of our 3 dividend safety metrics. With that in mind, we believe a dividend cut is likely in the next few years.

Editor’s Note: We’ve been keeping an eye on some dividend stocks that could be better for your income portfolio than Watsco. These dividends are much bigger — and safer — than the paltry yields many investors settle for. Enter your email below to learn more. 

 

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