Remember those old Maytag commercials with the repairman who seemed to have all the time in the world? Since Maytag appliances were so reliable, he was often just catching some Z’s on the job. These days, the Maytag brand is under the umbrella of Whirlpool (NYSE: WHR), which offers a wide array of household essentials like dishwashers, refrigerators, and ovens, including other brands such as KitchenAid, Amana, and, of course, Whirlpool itself.
When it comes to stock, Whirlpool offers a rather enticing 7.5% dividend yield, but the real question is, can that dividend be counted on with the same reliability as those trusty old Maytag dishwashers?
Taking a closer look, Whirlpool’s free cash flow has been shrinking dramatically, much like that favorite wool sweater you accidentally tossed into the dryer. From 2021 to 2023, free cash flow plummeted 78%, dropping from $1.65 billion down to a mere $366 million. Though there was a slight uptick to $384 million last year, and forecasts suggest an increase to $547 million this year, the broader downward trend remains worrisome.
Another point of contention for Whirlpool is how in 2024, it ended up distributing every dollar of its free cash flow as dividends. Specifically, it matched its $384 million in free cash flow with an equally hefty payout to its shareholders, hitting a full 100% payout ratio. This approach leaves no cushion if the cash flow dips lower.
While a decline isn’t on the cards just yet, given the expected dip in revenue and earnings for this year, it wouldn’t be entirely surprising if cash flow doesn’t meet the optimistic predictions. Should the total dividend payout outstretch the cash flow, Whirlpool might have to tap into its cash reserves or even borrow to keep up with dividends, which is far from ideal and could lead to a dicey situation where a dividend cut becomes a real possibility if free cash flow doesn’t bounce back next year.
The company is currently doling out a chunky $1.75 per share each quarter, translating to that impressive 7.5% yield. Whirlpool has maintained this dividend since early 2022 and hasn’t slashed it since it initiated payments back in 1989. Even though there’s no need to keep up a streak of increasing dividends, it’s safe to bet that Whirlpool’s management would rather steer clear of a first-time cut after 36 years.
While a dividend cut isn’t on the immediate horizon, if Whirlpool doesn’t manage to boost its free cash flow by 2025, the dividend could be at risk.
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