Quaker Chemical (NYSE:KWR) Has Announced That It Will Be Increasing Its Dividend To $0.455

The board of Quaker Chemical Corporation (NYSE:KWR) has announced that it will be paying its dividend of $0.455 on the 31st of October, an increased payment from last year's comparable dividend. This takes the annual payment to 1.1% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Quaker Chemical

Quaker Chemical Is Paying Out More Than It Is Earning

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Quaker Chemical's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 96.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 199%, which probably can't continue without putting some pressure on the balance sheet.

Quaker Chemical Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $0.98 total annually to $1.82. This works out to be a compound annual growth rate (CAGR) of approximately 6.4% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Earnings per share has been sinking by 28% over the last 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. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Quaker Chemical's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Quaker Chemical is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Quaker Chemical you should be aware of, and 1 of them is potentially serious. Is Quaker Chemical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.