Sociedad Química y Minera de Chile (NYSE:SQM) Is Increasing Its Dividend To US$0.063

The board of Sociedad Química y Minera de Chile S.A. (NYSE:SQM) has announced that it will be increasing its dividend on the 1st of January to US$0.063. The announced payment will take the dividend yield to 1.6%, which is in line with the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Sociedad Química y Minera de Chile's stock price has increased by 46% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Sociedad Química y Minera de Chile

Sociedad Química y Minera de Chile's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Sociedad Química y Minera de Chile's dividend was only 28% of earnings, however it was paying out 149% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 199.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from US$0.73 to US$1.95. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Sociedad Química y Minera de Chile has been growing its earnings per share at 14% a year over the past five years. Sociedad Química y Minera de Chile definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Sociedad Química y Minera de Chile will make a great income stock. While Sociedad Química y Minera de Chile 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Sociedad Química y Minera de Chile that investors should take into consideration. Is Sociedad Química y Minera de Chile 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.