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Sensient Technologies Corporation (NYSE:SXT) will pay a dividend of $0.41 on the 2nd of December. This means that the annual payment will be 2.1% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for Sensient Technologies
Sensient Technologies' Payment Could Potentially Have Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Sensient Technologies' dividend made up quite a large proportion of earnings but only 49% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
The next year is set to see EPS grow by 110.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Sensient Technologies Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.92 in 2014 to the most recent total annual payment of $1.64. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth May Be Hard To Come By
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. It's not great to see that Sensient Technologies' earnings per share has fallen at approximately 7.7% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
Our Thoughts On Sensient Technologies' Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Sensient Technologies is a great stock to add to your portfolio if income is your focus.