The board of FMC Corporation (NYSE:FMC) has announced that it will pay a dividend on the 17th of July, with investors receiving $0.58 per share. This means the annual payment is 6.1% of the current stock price, which is above the average for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. FMC's stock price has reduced by 31% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
FMC's Projected Earnings Seem Likely To Cover Future Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, FMC was paying out quite a large proportion of both earnings and cash flow, with the dividend being 144% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
Over the next year, EPS is forecast to expand by 31.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
View our latest analysis for FMC
FMC Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $0.60, compared to the most recent full-year payment of $2.32. This means that it has been growing its distributions at 14% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth May Be Hard To Come By
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. In the last five years, FMC's earnings per share has shrunk at approximately 6.1% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about FMC's payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think FMC is a great stock to add to your portfolio if income is your focus.
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. For example, we've identified 5 warning signs for FMC (1 is significant!) 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.