McCormick (NYSE:MKC) Is Paying Out A Larger Dividend Than Last Year

McCormick & Company, Incorporated (NYSE:MKC) has announced that it will be increasing its dividend on the 10th of January to US$0.37. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

See our latest analysis for McCormick

McCormick's Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. McCormick was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 6.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 50% by next year, which is in a pretty sustainable range.

McCormick Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the dividend has gone from US$0.56 to US$1.48. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

McCormick Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. McCormick has impressed us by growing EPS at 9.2% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On McCormick's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for McCormick that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.