Eastman Chemical Company (NYSE:EMN) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 13th of September in order to be eligible for this dividend, which will be paid on the 4th of October.
Eastman Chemical's next dividend payment will be US$0.62 per share. Last year, in total, the company distributed US$2.48 to shareholders. Calculating the last year's worth of payments shows that Eastman Chemical has a trailing yield of 3.6% on the current share price of $68.05. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Eastman Chemical's payout ratio is modest, at just 37% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Eastman Chemical's earnings per share have been shrinking at 2.8% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Eastman Chemical has delivered 11% dividend growth per year on average over the past 10 years.
Should investors buy Eastman Chemical for the upcoming dividend? Eastman Chemical 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. To summarise, Eastman Chemical looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Eastman Chemical? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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