NewMarket (NYSE:NEU) Will Pay A Dividend Of $2.10

The board of NewMarket Corporation (NYSE:NEU) has announced that it will pay a dividend on the 3rd of April, with investors receiving $2.10 per share. This means that the annual payment will be 2.5% of the current stock price, which is in line with the average for the industry.

View our latest analysis for NewMarket

NewMarket's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, NewMarket was paying only paying out a fraction of earnings, but the payment was a massive 155% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

If the trend of the last few years continues, EPS will grow by 12.3% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.

NewMarket Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $3.00 in 2013, and the most recent fiscal year payment was $8.40. This means that it has been growing its distributions at 11% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that NewMarket has been growing its earnings per share at 12% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about NewMarket's payments, as there could be some issues with sustaining them into the future. While NewMarket is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, NewMarket has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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