GrafTech International Ltd. (NYSE:EAF) has announced that it will pay a dividend of $0.01 per share on the 30th of December. Including this payment, the dividend yield on the stock will be 0.9%, which is a modest boost for shareholders' returns.
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. GrafTech International's stock price has reduced by 39% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
GrafTech International's Earnings Easily Cover The Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, GrafTech International's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 78.9% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 6.5%, which is comfortable for the company to continue in the future.
GrafTech International's Dividend Has Lacked Consistency
GrafTech International has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of $0.34 in 2017 to the most recent total annual payment of $0.04. This works out to a decline of approximately 88% over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. GrafTech International has seen EPS rising for the last five years, at 5.2% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Our Thoughts On GrafTech International's Dividend
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
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. Just as an example, we've come across 2 warning signs for GrafTech International you should be aware of, and 1 of them can't be ignored. 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.
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