McCormick's (NYSE:MKC) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of McCormick & Company, Incorporated (NYSE:MKC) has announced that the dividend on 13th of January will be increased to $0.45, which will be 7.1% higher than last year's payment of $0.42 which covered the same period. Although the dividend is now higher, the yield is only 2.2%, which is below the industry average.

See our latest analysis for McCormick

McCormick's Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, McCormick was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 21.4%. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

McCormick Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $0.74, compared to the most recent full-year payment of $1.68. This works out to be a compound annual growth rate (CAGR) of approximately 8.5% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 2.1% per year. Growth of 2.1% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

McCormick Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that McCormick is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

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. For instance, we've picked out 1 warning sign for McCormick that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.