Updated 3/5/25
Advanced Drainage Systems, Inc. (NYSE: WMS) is a leader in water management solutions, specializing in thermoplastic piping and drainage products. While the company has built a strong financial foundation and demonstrated steady growth, dividend investors may be wondering if it’s the right fit for an income-focused portfolio. Below, we’ll break down its key dividend metrics, financial health, and long-term outlook for investors who prioritize passive income.
- 📉 Dividend Yield (0.60%) – Low yield compared to traditional dividend stocks ❌
- 📈 Dividend Growth (5-Year Avg: 0.46%) – Growing but still minimal ✅
- 💰 Payout Ratio (10.37%) – Very low, indicating sustainability ✅
- 🔒 Dividend Safety (Cash Flow Coverage) – Well-supported by operating cash flow ✅
- 📅 Ex-Dividend Date (2/28/2025) – Investors must own shares before this date to qualify 🟢
- ⚠️ Dividend Consistency – Limited track record as a dividend stock ❌
- ⚖️ Yield vs. Industry Peers – Below average for the industrials sector ❌
Dividend Overview
Advanced Drainage Systems currently offers a dividend yield of 0.60%, which is well below the levels typically sought by income investors. The company’s forward annual dividend rate is $0.64 per share, with a trailing rate of $0.62. While the dividend has shown modest growth, it remains a secondary priority for the company.
One of the standout aspects of WMS’s dividend is its payout ratio, which sits at a remarkably low 10.37%. This means the company is returning a small portion of its earnings to shareholders, leaving plenty of room for potential increases in the future. However, given the company’s focus on reinvestment and growth, dividends may not be its main priority.
The next dividend payout is scheduled for March 14, 2025, with an ex-dividend date of February 28, 2025. Investors looking to collect the next dividend should ensure they own shares before the ex-dividend date.
Chart Analysis
The chart for Advanced Drainage Systems, Inc. (WMS) shows a clear downtrend over the past several months, with both the 50-day moving average (orange line) and the 200-day moving average (blue line) sloping downward. The price has been trading below both moving averages for an extended period, which typically signals continued weakness.
In the earlier part of the chart, WMS experienced a period of consolidation with some sharp upward moves, but those rallies were met with selling pressure. Around late summer to early fall, the price attempted a breakout, only to be rejected near the 200-day moving average, which acted as strong resistance. Since then, the stock has steadily declined, making lower highs and lower lows.
A particularly notable moment occurred in November and December, where there was a significant spike in volume, indicating a heavy distribution phase. The increased selling pressure during this period led to a steep drop in price, and even though there were a few bounce attempts, none of them were able to reclaim the 50-day moving average.
As we move into the most recent price action, WMS continues to decline, and the last few candles show signs of increased volatility. The latest five candles indicate a struggle between buyers and sellers. Some wicks to the downside suggest buyers are trying to step in at these levels, but the overall trend remains weak. The RSI, displayed at the bottom of the chart, has remained in the lower range for a while, suggesting the stock has been oversold for an extended period but hasn’t yet shown strong signs of a reversal.
Volume over the last few sessions appears to be picking up again, which could suggest either continued distribution or the beginning stages of accumulation by long-term buyers. The price remains in a downward channel, and any attempt to recover would need to see a break above the 50-day moving average with sustained volume.
Earnings Report Summary
Advanced Drainage Systems (WMS) recently released its latest earnings report, giving investors a closer look at how the company is performing. The numbers were a bit of a mixed bag—while revenue showed some solid growth, profits took a hit due to rising costs and other financial pressures.
For the third quarter of fiscal year 2025, WMS reported $690.5 million in net sales, which is a 4.3% increase from the same period last year. The biggest boost came from the Infiltrator segment, where sales jumped 30.3%, thanks in part to the company’s acquisition of Orenco Systems, a business specializing in wastewater management products. This helped drive overall revenue higher, showing that demand in the construction sector remains steady.
However, despite higher sales, net income dropped by 23% to $82.3 million, compared to $106.9 million in the same quarter last year. The main culprits behind the profit decline were higher material costs, pricing pressures, and costs associated with integrating Orenco. As a result, diluted earnings per share fell to $1.04, down 22.3% from the previous year.
The company’s Adjusted EBITDA, a key measure of profitability, also slipped 6.2% to $191.5 million, reflecting similar cost pressures. Looking at the bigger picture, year-to-date revenue is up 3.1% to $2.3 billion, but net income has declined by 10.1% to $375.8 million, showing that while sales are increasing, profitability has been under pressure.
On the financial stability side, WMS continues to maintain a strong liquidity position, with $1.08 billion in available funds, including $488.9 million in cash and $589.6 million in credit availability. The company’s net debt stands at $920.8 million, which has increased slightly from earlier in the year, but leverage remains low at 1.0 times Adjusted EBITDA, indicating a solid financial foundation.
Another notable move this quarter was the company’s stock buyback program. WMS repurchased 400,000 shares for a total of $69.9 million, leaving $147.7 million available under its current buyback authorization. This suggests confidence in the company’s long-term value and a commitment to returning capital to shareholders.
Looking ahead, the company reaffirmed its guidance for full-year net sales between $2.9 billion and $2.975 billion and Adjusted EBITDA between $880 million and $920 million. Capital expenditures are expected to land around $225 million, as WMS continues to invest in expanding production capacity and making strategic acquisitions.
Analyst Ratings
Advanced Drainage Systems, Inc. (WMS) has recently experienced a mix of analyst upgrades and downgrades, reflecting varied perspectives on the company’s performance and outlook.
Upgrades:
- On January 8, 2025, UBS upgraded WMS from a “neutral” rating to a “buy” rating, setting a price target of $155. This upgrade was based on the company’s solid financial performance and growth prospects.
- StockNews.com also upgraded WMS to a “hold” rating on March 5, 2025, indicating a more favorable view of the company’s stability and potential.
Downgrades:
- Conversely, on November 13, 2024, Stephens & Co. downgraded WMS from “overweight” to “equal weight,” reducing the price target from $170 to $135. This downgrade was attributed to concerns over valuation and potential market headwinds.
- Barclays maintained its “buy” rating but adjusted the price target from $160 to $149 on February 7, 2025, reflecting a more cautious outlook on the company’s near-term performance.
Consensus Price Target:
As of the latest analyses, the consensus 12-month price target for WMS stands at approximately $164.25, suggesting a potential upside from current trading levels.
These mixed analyst ratings highlight the diverse opinions on WMS’s valuation and future performance, with some analysts expressing optimism about growth opportunities, while others advise caution due to valuation concerns and market conditions.
Earnings Report Summary
AES Corporation’s latest earnings report was a mixed bag, with some bright spots and a few challenges. The company posted adjusted earnings per share (EPS) of $0.54 for the fourth quarter of 2024, beating expectations of $0.34. However, compared to the same quarter last year, when EPS came in at $0.73, there was a decline. On the revenue side, AES brought in $2.96 billion for the quarter, slightly below the $3.26 billion that analysts had projected and just under last year’s $2.97 billion.
For the full year, AES showed some solid earnings growth, reporting an adjusted EPS of $2.14, an improvement over the $1.76 from the previous year. This increase was largely driven by new renewable energy projects, a more favorable tax rate, and stronger performance from its utilities business. That said, costs were on the rise. The company’s cost of sales edged up by 2.7% in the fourth quarter, hitting $2.54 billion, while operating income dropped by 15% to $420 million. Interest expenses also crept up slightly to $360 million.
One of the biggest highlights of the quarter was AES’s success in locking in new agreements. The company secured 6.8 gigawatts (GW) of new deals, including long-term power purchase agreements for 4.4 GW of renewable energy. Additionally, AES lined up 2.1 GW to support data center expansion in Ohio, along with another 310 megawatts to power retail data centers in the region. These new deals pushed its total contracted backlog to nearly 12 GW, with about 4.9 GW already under construction.
On the financial side, AES had $1.52 billion in cash at the end of the year, up slightly from $1.43 billion a year earlier. However, non-recourse debt rose to $20.63 billion from $18.48 billion. Operating cash flow came in at $2.75 billion for the year, down from $3.03 billion in 2023. Capital expenditures in the final quarter were $1.73 billion, a decline from the $2.43 billion spent during the same period the prior year.
Looking ahead, AES set its 2025 earnings guidance between $2.10 and $2.26 per share, sticking to its long-term plan of 7-9% average annual earnings growth through 2027. The company is also pushing forward with its renewable energy expansion, aiming to bring 3.2 GW of new capacity online by the end of 2025.
Despite missing revenue estimates, the stock jumped more than 14% in pre-market trading after the earnings announcement. Investors may have been encouraged by the company’s cost-cutting efforts, focus on higher-return projects, and steady expansion in renewables. It’s clear AES is navigating a changing energy landscape while trying to keep earnings on track.
Financial Stability and Dividend Safety
A company’s ability to maintain and grow its dividend depends largely on financial stability. Advanced Drainage Systems has strong cash flow, generating $557.93 million in operating cash flow over the past year. Additionally, it has $488.86 million in cash on hand, which provides a comfortable buffer for continued dividend payments.
The company does carry a moderate amount of debt, with a total debt load of $1.41 billion and a debt-to-equity ratio of 95.95%. While this isn’t an immediate concern, higher debt levels could limit flexibility if economic conditions weaken. Despite this, WMS’s financial health remains solid, and dividends are well covered by cash flow.
Growth Potential and Dividend Expansion
Advanced Drainage Systems has demonstrated steady revenue growth, reporting $2.94 billion in trailing twelve-month revenue. Quarterly revenue has increased by 4.3% year-over-year, although net income has declined by 23.1% in the same period. The company remains profitable, with a net income of $467.84 million and earnings per share of $5.98.
Dividend growth potential is a key consideration for investors. WMS has gradually increased its payouts, but with a five-year average dividend yield of just 0.46%, it remains a relatively small dividend payer. That said, the low payout ratio means the company has the flexibility to increase dividends if management prioritizes shareholder returns in the future.
Valuation and Dividend Yield Comparison
When evaluating a stock for dividend investing, it’s important to consider valuation. Advanced Drainage Systems trades at a trailing price-to-earnings (P/E) ratio of 17.95 and a forward P/E of 15.67, suggesting it is fairly valued based on future earnings expectations. The company’s price-to-book ratio is 5.38, reflecting its premium valuation compared to industry averages.
From a dividend perspective, WMS falls short of industry norms. The industrials sector generally offers yields in the 2-4% range, making WMS’s 0.60% yield significantly lower than many of its peers. Investors who prioritize yield may find better options elsewhere.
Key Risks and Considerations for Dividend Investors
The most obvious downside for dividend investors is the stock’s low yield. At just 0.60%, it doesn’t provide the level of passive income that many income-focused investors seek. This makes WMS less attractive for those who rely on dividends for regular cash flow.
While the company has the potential to increase dividends in the future, its current focus appears to be on growth and reinvestment rather than returning capital to shareholders. This isn’t necessarily a negative, but it does mean investors should temper expectations for significant dividend increases in the near term.
Another consideration is earnings volatility. While revenue has grown, net income has declined over the past year. If profitability continues to fluctuate, it could impact the company’s ability to increase dividends consistently.
Additionally, WMS carries a moderate amount of debt. While not excessive, a debt-to-equity ratio of nearly 96% means the company needs to manage its leverage carefully. Rising interest rates or economic downturns could put additional pressure on financials.
Conclusion: Is WMS a Good Dividend Stock?
Advanced Drainage Systems is a well-run company with strong financials and a solid growth trajectory, but it’s not a traditional dividend stock. Its low yield makes it less appealing for income-focused investors, though its extremely low payout ratio and healthy cash flow suggest dividends are highly sustainable.
For investors who prioritize long-term capital appreciation with the added benefit of a modest and growing dividend, WMS may be a reasonable choice. However, those seeking immediate and substantial dividend income might find better opportunities in stocks with higher yields and a stronger history of dividend payments.
Ultimately, WMS offers a stable and growing business with a dividend component, but it remains primarily a growth-oriented investment rather than a core dividend play.