Here's What We Like About NewMarket's (NYSE:NEU) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see NewMarket Corporation (NYSE:NEU) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 14th of December will not receive this dividend, which will be paid on the 4th of January.

NewMarket's next dividend payment will be US$1.90 per share, and in the last 12 months, the company paid a total of US$7.60 per share. Looking at the last 12 months of distributions, NewMarket has a trailing yield of approximately 2.0% on its current stock price of $386.63. If you buy this business for its dividend, you should have an idea of whether NewMarket's dividend is reliable and sustainable. As a result, readers should always check whether NewMarket has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for NewMarket

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. NewMarket paid out a comfortable 33% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit NewMarket paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at NewMarket, with earnings per share up 4.6% on average over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, NewMarket has increased its dividend at approximately 18% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is NewMarket worth buying for its dividend? Earnings per share have been growing moderately, and NewMarket is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and NewMarket is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in NewMarket for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for NewMarket that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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