Yahoo Finance NewMarket's (NYSE:NEU) Dividend Will Be $2.10
NewMarket Corporation's (NYSE:NEU) investors are due to receive a payment of $2.10 per share on 3rd of January. This makes the dividend yield 2.8%, which will augment investor returns quite nicely.
Check out our latest analysis for NewMarket
NewMarket's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, NewMarket's 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.
Looking forward, earnings per share could rise by 1.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.
NewMarket Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from $3.00 total annually to $8.40. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
NewMarket 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. However, NewMarket's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.2% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about NewMarket's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for NewMarket (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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