Phibro Animal Health (NASDAQ:PAHC) Will Pay A Dividend Of $0.12

The board of Phibro Animal Health Corporation (NASDAQ:PAHC) has announced that it will pay a dividend on the 25th of September, with investors receiving $0.12 per share. This payment means that the dividend yield will be 2.8%, which is around the industry average.

View our latest analysis for Phibro Animal Health

Phibro Animal Health's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the company was paying out 148% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 48%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 48%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Phibro Animal Health Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from $0.40 total annually to $0.48. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Phibro Animal Health's EPS has declined at around 28% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Phibro Animal Health's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Phibro Animal Health's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Phibro Animal Health (of which 1 makes us a bit uncomfortable!) you should know about. Is Phibro Animal Health not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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