Marzetti (NASDAQ:MZTI) Will Pay A Larger Dividend Than Last Year At $1.00

The board of The Marzetti Company (NASDAQ:MZTI) has announced that the dividend on 31st of December will be increased to $1.00, which will be 5.3% higher than last year's payment of $0.95 which covered the same period. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.

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Marzetti's Future Dividend Projections Appear Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Marzetti was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 23.0%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

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Marzetti Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.84 in 2015 to the most recent total annual payment of $3.80. This means that it has been growing its distributions at 7.5% per annum 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.

Marzetti May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 4.9% per annum over the last five years, which admittedly is a bit slow. Growth of 4.9% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

We Really Like Marzetti's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 6 analysts we track are forecasting for Marzetti for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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