The board of Willis Towers Watson Public Limited Company (NASDAQ:WTW) has announced that it will be paying its dividend of $0.92 on the 15th of April, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

View our latest analysis for Willis Towers Watson

Willis Towers Watson's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Willis Towers Watson's Could Struggle to Maintain Dividend Payments In The Future

Willis Towers Watson's Future Dividends May Potentially Be At Risk

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. While Willis Towers Watson is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS is forecast to grow rapidly. If the dividend continues along recent trends, we estimate the payout ratio could reach 172%, which is unsustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $3.18 in 2015 to the most recent total annual payment of $3.68. This implies that the company grew its distributions at a yearly rate of about 1.5% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Willis Towers Watson's EPS has declined at around 7.9% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Willis Towers Watson's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Willis Towers Watson is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Willis Towers Watson that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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