Croda International (LON:CRDA) Is Paying Out A Larger Dividend Than Last Year

Croda International Plc (LON:CRDA) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of October to £0.47. Even though the dividend went up, the yield is still quite low at only 1.6%.

See our latest analysis for Croda International

Croda International's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Croda International was paying only paying out a fraction of earnings, but the payment was a massive 98% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to fall by 49.2%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 42%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Croda International Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from £0.584 total annually to £1.03. This works out to be a compound annual growth rate (CAGR) of approximately 5.9% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Croda International has impressed us by growing EPS at 25% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Croda International's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Croda International is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Croda International that investors should take into consideration. Is Croda International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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