Zurn Elkay plans 14% dividend hike amid projected earnings rise

Zurn Elkay Water Solutions Corporation (ZWS) has announced an increase of 14% to its periodic dividend, raising it to $0.08 on December 7th. This decision comes despite a below-average yield of 1.1%. The company’s last dividend was amply covered by its significant cash flow, a trend that prevailed even when profits were less than satisfactory.

According to InvestingPro, ZWS has a market cap of 4430M USD and a P/E ratio of 86.17. The revenue growth has been accelerating, with a reported 55.54% increase in the last twelve months (LTM2023.Q2), and a quarterly growth of 41.87% in FY2023.Q2. The company’s gross profit for the same period stood at 572.1M USD, accounting for a margin of 37.31%. These metrics suggest a strong financial performance.

Analysts are forecasting a substantial increase in the company’s earnings per share (EPS) in the upcoming year. If this trend persists, ZWS’s payout ratio could stabilize at 32%, which suggests that the dividend could be sustainable even at its current elevated levels.

InvestingPro Tips highlight that despite the declining trend in earnings per share, net income is expected to grow this year. Additionally, the company’s liquid assets exceed short term obligations, which provides a safety net for the company’s financial health. It’s worth noting that these insights are part of the many additional tips offered by InvestingPro to its users.

However, the company’s dividends have been somewhat volatile, with an annual decrease of 3.3% over the past four years. This instability coincides with a decline in the company’s EPS, which has been falling at an average rate of 32% per year over the past five years. Such a trend could potentially pose a threat to the company’s future dividend growth.

Despite these challenges, the company’s earnings are projected to rise in the next year. This optimistic outlook could potentially counterbalance the recent downward trend in EPS and provide a more stable footing for the company’s dividend policy in the future. The InvestingPro data also reveals that the analysts predict the company will be profitable this year, with a strong return over the last five years.

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