Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Quaker Chemical Corporation (NYSE:KWR) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 16th of July to receive the dividend, which will be paid on the 31st of July.
Quaker Chemical’s next dividend payment will be US$0.39 per share, and in the last 12 months, the company paid a total of US$1.48 per share. Based on the last year’s worth of payments, Quaker Chemical stock has a trailing yield of around 0.8% on the current share price of $183.01. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Quaker Chemical’s payout ratio is modest, at just 33% of profit. 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. Fortunately, it paid out only 30% of its free cash flow in the past year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Companies that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we’re not overly excited about Quaker Chemical’s flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Quaker Chemical has delivered 5.3% dividend growth per year on average over the past 10 years.
To Sum It Up
Is Quaker Chemical an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we’re intrigued to see that Quaker Chemical is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Quaker Chemical is halfway there. Overall we think this is an attractive combination and worthy of further research.
Ever wonder what the future holds for Quaker Chemical? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.