Compass Minerals International, Inc. (NYSE:CMP) will pay a dividend of US$0.72 on the 18th of June. This makes the dividend yield 4.2%, which will augment investor returns quite nicely.
Compass Minerals International's Distributions May Be Difficult To Sustain
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 171% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
Looking forward, earnings per share is forecast to fall off a cliff over the next year. This could mean that the management team has to make some tough choices about cutting the dividend or putting extra pressure on the balance sheet.
Compass Minerals International Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$1.56 in 2011, and the most recent fiscal year payment was US$2.88. This works out to be a compound annual growth rate (CAGR) of approximately 6.3% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth Potential Is Shaky
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Compass Minerals International's earnings per share has shrunk at 17% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Compass Minerals International (1 is significant!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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