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How safe is the Woolworths dividend?

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Woolworths Group Ltd (ASX: WOW) is undoubtedly a popular ASX share. This could be for one or more of many possible reasons.

For one, chances are highly likely that many prospective Woolworths shareholders are also customers. Woolworths is, after all, the grocer with the highest market share in the country. Woolworths has also been on the ASX boards for decades, and its size and scale in the consumer staples sector means that many investors consider Woolworths to be an ASX 200 blue-chip share.

This is only accentuated by Woolworths’ long history of paying dividends. The company hasn’t missed a dividend for decades now. But its history of dividend payments certainly hasn’t been perfect. For one, the company has yet to beat its 2015 annual total of $1.39 in dividends per share. 2021 saw the company dole out $1.08 in dividends.

So how safe is the Woolworths dividend if it can be cut so dramatically?

Well, that’s a complex question. Just because Woolworths hasn’t been increasing its dividends year in, year out doesn’t mean the company’s dividend isn’t safe.

As my Fool colleague covered a few months ago, Woolworths’ 2021 dividends represented a payout ratio of 65.45% of the company’s earnings per share (EPS). That means the company kept almost 35% of its earnings within the business.

If Woolies had a payout ratio of 90-95%, we could say that its dividend safety was under a cloud. But on these metrics, it looks as though Woolworths can easily afford to keep the dividend taps open.

But for investors looking for income certainty, Woolworths shares might not be the best bet, going off of history.

We’ve already examined the company’s patchy dividend record over the past decade. And the ongoing COVID-19 pandemic has played havoc with Woolies’ costs in recent years. This is probably partly why 2022’s interim dividend of 39 cents was less than 2021’s 53 cents.

At the closing Woolworths share price today, this ASX 200 blue-chip share has a market capitalisation of $41.8 billion, with a fully franked dividend yield of 2.68%.

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