World Fuel Services Corporation (NYSE:INT) is about to trade ex-dividend in the next four 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 9th of October.
World Fuel Services's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Based on the last year's worth of payments, World Fuel Services has a trailing yield of 1.6% on the current stock price of $25.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. World Fuel Services has a low and conservative payout ratio of just 19% of its income after tax. A useful secondary check can be to evaluate whether World Fuel Services generated enough free cash flow to afford its dividend. Luckily it paid out just 10.0% of its free 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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by World Fuel Services's 7.9% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. World Fuel Services has delivered an average of 10% per year annual increase in its dividend, based on the past 10 years of dividend payments.
From a dividend perspective, should investors buy or avoid World Fuel Services? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, World Fuel Services looks okay on this analysis, although it doesn't appear a stand-out opportunity.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - World Fuel Services has 2 warning signs we think you should be aware of.
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.
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. 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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