Sensient Technologies (NYSE:SXT) Is Paying Out A Dividend Of $0.41

Sensient Technologies Corporation's (NYSE:SXT) investors are due to receive a payment of $0.41 per share on 3rd of June. Based on this payment, the dividend yield will be 2.3%, which is fairly typical for the industry.

View our latest analysis for Sensient Technologies

Sensient Technologies' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Sensient Technologies was paying out 76% of earnings, but a comparatively small 62% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 91.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 42% which brings it into quite a comfortable range.

Sensient Technologies Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.92 in 2014, and the most recent fiscal year payment was $1.64. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% a year over that time. 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.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Sensient Technologies' earnings per share has fallen at approximately 9.9% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Sensient Technologies' Dividend

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. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Sensient Technologies that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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