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Innospec Inc. (NASDAQ:IOSP) will increase its dividend from last year's comparable payment on the 30th of May to $0.84. This makes the dividend yield about the same as the industry average at 1.7%.
We've discovered 3 warning signs about Innospec. View them for free.
Innospec's Projections Indicate Future Payments May Be Unsustainable
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Innospec's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to expand by 66.6%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 99% over the next year.
See our latest analysis for Innospec
Innospec Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was $0.54, compared to the most recent full-year payment of $1.58. This means that it has been growing its distributions at 11% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Innospec's earnings per share has shrunk at 26% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Innospec's payments are rock solid. 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 would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for Innospec that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.