The board of WAM Strategic Value Limited (ASX:WAR) has announced that the dividend on 29th of May will be increased to A$0.03, which will be 33% higher than last year's payment of A$0.0225 which covered the same period. This takes the dividend yield to 5.2%, which shareholders will be pleased with.

Check out our latest analysis for WAM Strategic Value

WAM Strategic Value's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by WAM Strategic Value's earnings. This means that a large portion of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 34.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 60% by next year, which is in a pretty sustainable range.

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 2023 to the most recent total annual payment of A$0.06. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. WAM Strategic Value will be very happy to have seen its EPS grow by 35% in just the last 12 months. We always like to see numbers like these going up, but we don't expect them to shoot up forever, especially as the company grows. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that WAM Strategic Value could prove to be a strong dividend payer. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.

We Really Like WAM Strategic Value's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for WAM Strategic Value that investors should know about before committing capital to this stock. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.