Kennametal (NYSE:KMT) Is Paying Out A Dividend Of $0.20
The board of Kennametal Inc. (NYSE:KMT) has announced that it will pay a dividend of $0.20 per share on the 27th of February. This makes the dividend yield 3.3%, which will augment investor returns quite nicely.
Check out our latest analysis for Kennametal
Kennametal's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Kennametal's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 36.1%. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.
Kennametal Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.64 in 2014, and the most recent fiscal year payment was $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Kennametal's EPS has fallen by approximately 11% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
Our Thoughts On Kennametal'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 payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Kennametal that investors should take into consideration. Is Kennametal not quite the opportunity you were looking for? Why not check out our selection of top 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.
