World Fuel Services Corporation (NYSE:INT) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 26th of March will not receive this dividend, which will be paid on the 9th of April.
World Fuel Services's upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.40 per share to shareholders. Based on the last year's worth of payments, World Fuel Services stock has a trailing yield of around 1.5% on the current share price of $26.53. If you buy this business for its dividend, you should have an idea of whether World Fuel Services's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. World Fuel Services is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether World Fuel Services generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that World Fuel Services's earnings are down 3.1% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. World Fuel Services has delivered 10% dividend growth per year on average over the past ten years.
To Sum It Up
Is World Fuel Services an attractive dividend stock, or better left on the shelf? World Fuel Services has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of World Fuel Services's dividend merits.
So while World Fuel Services looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - World Fuel Services has 1 warning sign we think you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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