Attention dividend hunters! Albemarle Corporation (NYSE:ALB) will be distributing its dividend of US$0.37 per share on the 01 April 2019, and will start trading ex-dividend in 2 days time on the 14 March 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Albemarle’s latest financial data to analyse its dividend characteristics.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How does Albemarle fare?
The company currently pays out 21% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 19% which, assuming the share price stays the same, leads to a dividend yield of around 1.7%. Furthermore, EPS is also forecasted to fall to $6.34 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. ALB has increased its DPS from $0.50 to $1.47 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes ALB a true dividend rockstar.
Relative to peers, Albemarle generates a yield of 1.8%, which is on the low-side for Chemicals stocks.
