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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Quaker Chemical Corporation (NYSE:KWR) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 16th of July, you won't be eligible to receive this dividend, when it is paid on the 31st of July.
Quaker Chemical's upcoming dividend is US$0.39 a share, following on from the last 12 months, when the company distributed a total of US$1.48 per share to shareholders. Based on the last year's worth of payments, Quaker Chemical stock has a trailing yield of around 0.8% on the current share price of $183.01. 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! We need to see whether the dividend is covered by earnings and if it's 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. Quaker Chemical paid out a comfortable 33% of its profit last year. A useful secondary check can be to evaluate whether Quaker Chemical generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Quaker Chemical'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?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Quaker Chemical's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Quaker Chemical has increased its dividend at approximately 5.3% a year on average.
To Sum It Up
Should investors buy Quaker Chemical for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Quaker Chemical is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Quaker Chemical is halfway there. Quaker Chemical looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Quaker Chemical? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.