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 5.3%, which shareholders will be pleased with.

Check out our latest analysis for WAM Strategic Value

WAM Strategic Value's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by WAM Strategic Value's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS could expand by 34.7% if recent trends continue. 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

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2023, the dividend has gone from A$0.04 total annually to A$0.06. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. WAM Strategic Value has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. WAM Strategic Value's earnings per share is up 35% on last year. It's nice to see earnings per share rising, but one year is too short a period to get excited about. Were this trend to continue, we'd be interested. WAM Strategic Value is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future. Any one year of performance can be misleading for a variety of reasons, so we wouldn't like to form any strong conclusions based on these numbers alone.

WAM Strategic Value Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that WAM Strategic Value is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for WAM Strategic Value that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of 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.