The board of Dow Inc. (NYSE:DOW) has announced that it will pay a dividend of $0.70 per share on the 9th of September. Based on this payment, the dividend yield on the company's stock will be 5.0%, which is an attractive boost to shareholder returns.
Dow's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Dow's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 14.8% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 39%, which is comfortable for the company to continue in the future.
Dow Is Still Building Its Track Record
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The last annual payment of $2.80 was flat on the annual payment from3 years ago. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Dow has seen EPS rising for the last three years, at 73% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Dow Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think Dow might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Dow (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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