Albemarle Corporation's (NYSE:ALB) investors are due to receive a payment of US$0.39 per share on 1st of October. This payment means the dividend yield will be 0.7%, which is below the average for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Albemarle's stock price has increased by 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Albemarle's Dividend Is 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. Before making this announcement, Albemarle was paying a whopping 123% as a dividend, but this only made up 24% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
EPS is set to fall by 11.6% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 29%, which is comfortable for the company to continue in the future.
Albemarle Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was US$0.56 in 2011, and the most recent fiscal year payment was US$1.56. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
We Could See Albemarle's Dividend Growing
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Albemarle has impressed us by growing EPS at 7.0% per year over the past five years. Albemarle definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Albemarle is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 4 warning signs for Albemarle that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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