Watts Water Technologies, Inc. (NYSE:WTS) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Watts Water Technologies investors that purchase the stock on or after the 31st of August will not receive the dividend, which will be paid on the 15th of September.

The company's next dividend payment will be US$0.30 per share, on the back of last year when the company paid a total of US$1.20 to shareholders. Looking at the last 12 months of distributions, Watts Water Technologies has a trailing yield of approximately 0.8% on its current stock price of $142.41. If you buy this business for its dividend, you should have an idea of whether Watts Water Technologies's dividend is reliable and sustainable. As a result, readers should always check whether Watts Water Technologies has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Watts Water Technologies

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Watts Water Technologies has a low and conservative payout ratio of just 17% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 29% of its free cash flow in the past year.

It's positive to see that Watts Water Technologies's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Watts Water Technologies has grown its earnings rapidly, up 21% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Watts Water Technologies has increased its dividend at approximately 11% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy Watts Water Technologies for the upcoming dividend? We love that Watts Water Technologies is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Watts Water Technologies looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Watts Water Technologies for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Watts Water Technologies you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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