You probably remember the old commercials featuring a bored Maytag repairman. In the ads, because Maytag appliances were so reliable, the repairman was often snoozing because he had nothing to do.
Today, Maytag is owned by Whirlpool (NYSE: WHR), which makes a wide range of appliances, including dishwashers, refrigerators, and ovens. The appliance maker’s other brands include Whirlpool, KitchenAid, Amana, and others.
The stock pays an impressive 7.5% dividend yield. But is that dividend as dependable as the old Maytag dishwashers?
Over the past few years, Whirlpool’s free cash flow has shrunk like a wool sweater left in the dryer.
From 2021 to 2023, free cash flow tumbled 78% from $1.65 billion to $366 million. Last year, it grew a little bit to $384 million. This year, it is forecast to bounce to $547 million, but the multiyear trend is still a concern.
Another issue with Whirlpool is that in 2024, it paid out all of its free cash flow in dividends. It generated $384 million in free cash flow and paid out $384 million to shareholders for a 100% payout ratio. That doesn’t give any room in case cash flow slips below last year’s total.
It’s not expected to decline, but with lower anticipated revenue and earnings this year, it wouldn’t be a huge surprise if cash flow does not grow like it is projected to.
If Whirlpool’s total dividend payout is higher than its cash flow, that means the company will have to dip into its cash reserve (or borrow money) to pay the dividend. That is not sustainable, so if Whirlpool doesn’t deliver cash flow growth this year, there is greater risk of a dividend cut.
The company currently pays a $1.75 per share quarterly dividend, which comes out to a big 7.5% yield.
Whirlpool has paid the same dividend since early 2022. It has never cut the dividend since it began paying one in 1989. So while it doesn’t have any dividend-raising streak it needs to keep up with, I’m sure management wants to avoid the first cut in its 36-year dividend-paying history.
While I don’t see an imminent reduction, there is risk to the dividend if Whirlpool doesn’t grow free cash flow in 2025.
What stock’s dividend safety would you like me to analyze next? Let me know here.
Dividend Safety Rating: C
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