International Paper's (NYSE:IP) Dividend Will Be $0.4625

The board of International Paper Company (NYSE:IP) has announced that it will pay a dividend of $0.4625 per share on the 16th of December. Based on this payment, the dividend yield on the company's stock will be 4.0%, which is an attractive boost to shareholder returns.

View our latest analysis for International Paper

International Paper's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was higher than its profits, and made up 87% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

The next year is set to see EPS grow by 174.2%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 52% which brings it into quite a comfortable range.

International Paper Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $1.40 in 2014 to the most recent total annual payment of $1.85. This works out to be a compound annual growth rate (CAGR) of approximately 2.8% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. International Paper's EPS has fallen by approximately 20% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

International Paper's Dividend Doesn't Look Sustainable

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. Overall, we don't think this company has the makings of a good income stock.

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. Taking the debate a bit further, we've identified 5 warning signs for International Paper that investors need to be conscious of moving forward. Is International Paper not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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