Croda International's (LON:CRDA) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Croda International Plc (LON:CRDA) has announced that it will be paying its dividend of £0.47 on the 4th of October, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 1.4%.

View our latest analysis for Croda International

Croda International's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. 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. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to fall by 49.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 42%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Croda International Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was £0.584 in 2012, and the most recent fiscal year payment was £1.03. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Croda International has grown earnings per share at 25% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Croda International is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Croda International that you should be aware of before investing. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.