Sensient Technologies' (NYSE:SXT) Dividend Will Be $0.41

Sensient Technologies Corporation (NYSE:SXT) has announced that it will pay a dividend of $0.41 per share on the 1st of September. 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.

Check out our latest analysis for Sensient Technologies

Sensient Technologies' Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Sensient Technologies' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 32.9%. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Sensient Technologies Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.88 in 2013, and the most recent fiscal year payment was $1.64. This implies that the company grew its distributions at a yearly rate of about 6.4% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Sensient Technologies May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Sensient Technologies' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Sensient Technologies is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sensient Technologies' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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. Just as an example, we've come across 2 warning signs for Sensient Technologies you should be aware of, and 1 of them doesn't sit too well with us. 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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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.