The board of Albemarle Corporation (NYSE:ALB) has announced that it will pay a dividend on the 1st of October, with investors receiving US$0.39 per share. The dividend yield is 0.7% based on this payment, which is a little bit low compared to the other companies in the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Albemarle's stock price has increased by 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Albemarle's Earnings Easily Cover the Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Albemarle's dividend was only 24% of earnings, however it was paying out 123% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Looking forward, earnings per share is forecast to fall by 11.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 29%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Albemarle Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was US$0.56 in 2011, and the most recent fiscal year payment was US$1.56. 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.
The Dividend Has Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Albemarle has grown earnings per share at 7.0% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Albemarle is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 4 warning signs for Albemarle that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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