It looks like World Fuel Services Corporation (NYSE:INT) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 24th of September in order to be eligible for this dividend, which will be paid on the 9th of October.
World Fuel Services’s next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$0.40 per share. Last year’s total dividend payments show that World Fuel Services has a trailing yield of 1.6% on the current share price of $25.41. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. World Fuel Services has a low and conservative payout ratio of just 19% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 10.0% of its free cash flow as dividends last year, which is conservatively low.
It’s positive to see that World Fuel Services’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. World Fuel Services’s earnings per share have fallen at approximately 7.9% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, World Fuel Services has increased its dividend at approximately 10% a year on average.
To Sum It Up
Is World Fuel Services worth buying for its dividend? World Fuel Services has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall we’re not hugely bearish on the stock, but there are likely better dividend investments out there.
While it’s tempting to invest in World Fuel Services for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for World Fuel Services and you should be aware of these before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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