Estée Lauder Companies (NYSE:EL) Is Increasing Its Dividend To $0.66

The board of The Estée Lauder Companies Inc. (NYSE:EL) has announced that it will be paying its dividend of $0.66 on the 15th of December, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 1.2%, which is fairly typical for the industry.

Check out the opportunities and risks within the US Personal Products industry.

Estée Lauder Companies' Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Estée Lauder Companies was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 48.8%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.525 in 2012, and the most recent fiscal year payment was $2.64. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Estée Lauder Companies has impressed us by growing EPS at 10% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Estée Lauder Companies Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Estée Lauder Companies 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Estée Lauder Companies that you should be aware of before investing. Is Estée Lauder Companies not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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