Innospec Inc.'s (NASDAQ:IOSP) dividend will be increasing from last year's payment of the same period to $0.84 on 30th of May. This takes the annual payment to 1.7% of the current stock price, which is about average for the industry.
Our free stock report includes 3 warning signs investors should be aware of before investing in Innospec. Read for free now.Innospec's Future Dividends May Potentially Be At Risk
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Innospec's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
Over the next year, EPS is forecast to expand by 66.6%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 99%, which probably can't continue without putting some pressure on the balance sheet.
Check out our latest analysis for Innospec
Innospec Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was $0.54, compared to the most recent full-year payment of $1.58. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year 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 Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Innospec's EPS has fallen by approximately 26% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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 becomes a long term trend.
Our Thoughts On Innospec's Dividend
Overall, we always like to see the dividend being raised, but we don't think Innospec will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Innospec is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Innospec that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.