Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that World Fuel Services Corporation (NYSE:INT) is about to go ex-dividend in just 4 days. Ex-dividend means that investors that purchase the stock on or after the 24th of September will not receive this dividend, which will be paid on the 11th of October.
World Fuel Services's next dividend payment will be US$0.1 per share. Last year, in total, the company distributed US$0.4 to shareholders. Last year's total dividend payments show that World Fuel Services has a trailing yield of 1.0% on the current share price of $40.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. World Fuel Services has a low and conservative payout ratio of just 13% of its income after tax. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 16% of its cash flow last year.
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. Readers will understand then, why we're concerned to see World Fuel Services's earnings per share have dropped 5.8% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, World Fuel Services has lifted its dividend by approximately 18% a year on average.
From a dividend perspective, should investors buy or avoid World Fuel Services? World Fuel Services 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. Overall, it's hard to get excited about World Fuel Services from a dividend perspective.
Curious what other investors think of World Fuel Services? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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