The advice of Republic Services, Inc. (NYSE: RSG) announced that it will increase its dividend on January 14 to $0.46. The announced payout will bring the dividend yield to 1.3%, which is in line with the industry average.
Republic Services revenue easily covers distributions
We’re not too impressed with dividend yields unless they can be sustained over time. Based on the last payout, Republic Services was earning quite comfortably enough to cover the dividend. This indicates that a large part of the profits are reinvested in the company, with the aim of fueling growth.
Looking ahead, earnings per share are expected to grow 17.1% over the next year. Assuming the dividend continues on recent trends, we think the payout ratio could be 42% by next year, which is in a fairly sustainable range.
Republic Services has a solid track record
The company has a steady history of paying dividends with very little fluctuation. The dividend increased from US$0.80 in 2011 to the last annual payment of US$1.84. This equates to a compound annual growth rate (CAGR) of approximately 8.7% per year during this period. Dividends have been growing at a reasonable pace over this period, and without any major reduction in payout over time, we think this is an attractive combination as it gives yields a good boost for shareholders.
The dividend should increase
Investors in the company will be happy to have received dividend income for a while. We are encouraged to see that Republic Services has grown its earnings per share by 17% per year over the past five years. With earnings per share growing at an acceptable pace and a balanced payout policy, we believe the company is well positioned to grow earnings and dividends going forward.
Republic Services looks like a great dividend stock
Overall, a dividend boost is always good, and we think Republic Services is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also converted into cash flow. Considering all of this, it looks like a good dividend opportunity.
Market movements testify to the valuation of a consistent dividend policy over a more unpredictable one. However, there are other things for investors to consider when analyzing stock performance. For example, we chose 2 warning signs for the services of the Republic that investors should be aware of before committing capital to this security. If you are a dividend investor, you can also consult our curated list of high performing dividend stocks.
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