Is WD-40's Dividend Hike a Signal of Shareholder-Friendly Stewardship or a Warning of Margin Pressure?

The recent 8%+ increase in WD-40's quarterly dividend to $1.02 per share, announced alongside its third-quarter 2025 earnings report, has sparked debate among investors. While the move underscores the company's commitment to rewarding shareholders, it also raises critical questions about its ability to sustain the higher payout amid mixed financial results and rising operating costs. A closer examination of the company's cost structure, margin dynamics, and payout ratio reveals a nuanced picture of risk and reward.

Mixed Earnings Signal Caution

WD-40's Q3 2025 results showed a 1% year-over-year revenue increase to $156.9 million, driven by a 2% rise in maintenance product sales, which account for 96% of total revenue. Gross margin improved significantly to 56.2% from 53.1% in the prior year, reflecting better cost management. However, selling, general, and administrative expenses surged 13% to $51.5 million, outpacing revenue growth and squeezing operating income, which rose only marginally to $27.4 million. This divergence highlights the company's struggle to balance cost inflation with profitability.

The earnings report also revealed a 4.8% year-on-year revenue increase of $163.5 million in another metric, though this fell short of EBITDA estimates. This "miss" has led analysts to question whether the dividend hike-announced despite the earnings shortfall-signals overconfidence in future cash flow generation or a strategic play to retain investor confidence.

Dividend Payout Ratio: A Double-Edged Sword

WD-40's current dividend payout ratio of 72.03% sits within what is generally considered a sustainable range for mature companies. However, this metric becomes more precarious when viewed alongside the 13% rise in SG&A expenses and the company's forward-looking guidance vacuum. While the improved gross margin suggests some resilience in controlling production costs, the sharp increase in operating expenses indicates ongoing pressure on discretionary spending.

The dividend increase, while generous, may strain cash reserves if operating expenses continue to outpace revenue growth. For context, a 1% rise in net income to $21.0 million in Q3 2025 contrasts sharply with the 8%+ dividend hike, implying a narrowing margin of safety for future payouts. This discrepancy is particularly concerning in a macroeconomic environment marked by inflationary pressures and supply chain volatility.

Management's Guidance: A Missing Piece

The absence of clear guidance on cost management strategies or margin pressures in the latest earnings report leaves investors in a gray area. While the company has demonstrated short-term margin improvement through gross profit expansion, there is no indication of how it plans to address the 13% surge in SG&A expenses or mitigate long-term cost inflation.

Balancing Shareholder Returns and Prudent Stewardship

WD-40's dividend hike reflects a classic tension between rewarding shareholders and preserving financial flexibility. On one hand, the company's 72% payout ratio and history of consistent dividends suggest a disciplined approach to capital allocation. On the other, the earnings miss and rising expenses signal potential vulnerabilities in its business model.

For income-focused investors, the dividend increase is a positive, but it should be viewed through the lens of risk. The company's ability to maintain its payout will depend heavily on its capacity to manage operating expenses and sustain gross margin improvements. If cost pressures persist or revenue growth stagnates, the 8%+ hike could strain liquidity, forcing a reassessment of dividend policy.

Conclusion

WD-40's dividend hike is a testament to its commitment to shareholder returns, but it also serves as a cautionary tale about the risks of overreliance on historical performance in a volatile market. While the improved gross margin and sustainable payout ratio offer reassurance, the earnings miss and rising operating expenses underscore the need for vigilance. Investors should monitor the company's cost management strategies and cash flow trends closely, as these will ultimately determine whether the dividend hike is a sign of stewardship-or a warning of margin pressure.