Yahoo Finance Here's What You Should Know About Croda International Plc's (LON:CRDA) 1.8% Dividend Yield
Is Croda International Plc (LON:CRDA) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
A slim 1.8% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Croda International could have potential. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
Explore this interactive chart for our latest analysis on Croda International!
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Croda International paid out 49% of its profit as dividends, over the trailing twelve month period. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Plus, there is room to increase the payout ratio over time.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Croda International paid out 62% of its cash flow as dividends last year, which is within a reasonable range for the average corporation. It's positive to see that Croda International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Consider getting our latest analysis on Croda International's financial position here.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Croda International's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past ten-year period, the first annual payment was UK£0.21 in 2009, compared to UK£0.89 last year. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time.
With rapid dividend growth and no notable cuts to the dividend over a lengthy period of time, we think this company has a lot going for it.
Dividend Growth Potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Earnings have grown at around 5.7% a year for the past five years, which is better than seeing them shrink! It's good to see decent earnings growth and a low payout ratio. Companies with these characteristics often display the fastest dividend growth over the long term - assuming earnings can be maintained, of course.
Conclusion
To summarise, shareholders should always check that Croda International's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Croda International pays out a low fraction of earnings. It pays out a higher percentage of its cashflow, although this is within acceptable bounds. Second, earnings growth has been mediocre, but at least the dividends have been relatively stable. Overall we think Croda International is an interesting dividend stock, although it could be better.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 17 analysts we track are forecasting for Croda International for free with public analyst estimates for the company.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
