The board of WAM Strategic Value Limited (ASX:WAR) has announced that the dividend on 29th of October will be increased to A$0.03, which will be 50% higher than last year's payment of A$0.02 which covered the same period. Based on this payment, the dividend yield for the company will be 3.6%, which is fairly typical for the industry.

Check out our latest analysis for WAM Strategic Value

WAM Strategic Value's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, WAM Strategic Value's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 40.1% over the next 12 months. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.

WAM Strategic Value's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of A$0.04 in 2022 to the most recent total annual payment of A$0.0425. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. WAM Strategic Value has grown its EPS by 40% over the past 12 months. It's unusual for a company to continue this long term, but we won't complain when it happens. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.

Our Thoughts On WAM Strategic Value's Dividend

Overall, we always like to see the dividend being raised, but we don't think WAM Strategic Value will make a great income stock. While WAM Strategic Value is earning enough to cover the payments, the cash flows are lacking. We don't think WAM Strategic Value is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for WAM Strategic Value you should be aware of, and 1 of them is a bit unpleasant. Is WAM Strategic Value not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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