Ingredion Incorporated (NYSE:INGR) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 31st of March will not receive this dividend, which will be paid on the 27th of April.
Ingredion's next dividend payment will be US$0.63 per share, and in the last 12 months, the company paid a total of US$2.52 per share. Based on the last year's worth of payments, Ingredion has a trailing yield of 3.6% on the current stock price of $69.88. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Ingredion has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Ingredion paying out a modest 41% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 49% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Ingredion'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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Ingredion, with earnings per share up 5.1% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ingredion has delivered 16% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
From a dividend perspective, should investors buy or avoid Ingredion? Earnings per share have been growing moderately, and Ingredion is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Ingredion is halfway there. It's a promising combination that should mark this company worthy of closer attention.
So while Ingredion looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 2 warning signs for Ingredion you should know about.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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