The board of Quaker Chemical Corporation (NYSE:KWR) has announced that it will be paying its dividend of $0.435 on the 31st of October, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.
Quaker Chemical's Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Quaker Chemical was paying only paying out a fraction of earnings, but the payment was a massive 108% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Over the next year, EPS is forecast to expand by 32.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.
Quaker Chemical 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. Since 2012, the annual payment back then was $0.96, compared to the most recent full-year payment of $1.74. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% 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.
Quaker Chemical Could Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Quaker Chemical has seen EPS rising for the last five years, at 6.4% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In summary, while it's always good to see the dividend being raised, we don't think Quaker Chemical's payments are rock solid. While Quaker Chemical is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Quaker Chemical has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Is Quaker Chemical not quite the opportunity you were looking for? Why not check out our selection of top 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.
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