Compass Minerals International (NYSE:CMP) Has Affirmed Its Dividend Of $0.15

The board of Compass Minerals International, Inc. (NYSE:CMP) has announced that it will pay a dividend of $0.15 per share on the 20th of December. Including this payment, the dividend yield on the stock will be 1.5%, which is a modest boost for shareholders' returns.

Check out the opportunities and risks within the US Metals and Mining industry.

Compass Minerals International's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Compass Minerals International is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, so there isn't too much pressure on the dividend.

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 $1.98 in 2012, and the most recent fiscal year payment was $0.60. This works out to a decline of approximately 70% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Compass Minerals International's earnings per share has shrunk at 28% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We should note that Compass Minerals International has issued stock equal to 20% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 2 warning signs for Compass Minerals International (of which 1 is a bit unpleasant!) you should know about. Is Compass Minerals International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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