The board of Sensient Technologies Corporation (NYSE:SXT) has announced that it will pay a dividend on the 1st of September, with investors receiving US$0.39 per share. Based on this payment, the dividend yield will be 1.8%, which is fairly typical for the industry.
Sensient Technologies' Earnings Easily Cover the Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Sensient Technologies' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 16.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.
Sensient Technologies Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was US$0.80 in 2011, and the most recent fiscal year payment was US$1.56. This works out to be a compound annual growth rate (CAGR) of approximately 6.9% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Sensient Technologies May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 3.6% per year. Growth of 3.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
We Really Like Sensient Technologies' Dividend
Overall, we like to see the dividend staying consistent, and we think Sensient Technologies might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Sensient Technologies that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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