Yahoo Finance Is It Smart To Buy NewMarket Corporation (NYSE:NEU) Before It Goes Ex-Dividend?
NewMarket Corporation (NYSE:NEU) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 14th of September in order to receive the dividend, which the company will pay on the 1st of October.
NewMarket's next dividend payment will be US$1.90 per share, on the back of last year when the company paid a total of US$7.60 to shareholders. Last year's total dividend payments show that NewMarket has a trailing yield of 2.1% on the current share price of $367.57. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for NewMarket
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see NewMarket paying out a modest 37% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that NewMarket's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit NewMarket paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see NewMarket earnings per share are up 2.0% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, NewMarket has increased its dividend at approximately 18% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is NewMarket worth buying for its dividend? Earnings per share growth has been growing somewhat, and NewMarket is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and NewMarket is halfway there. There's a lot to like about NewMarket, and we would prioritise taking a closer look at it.
While it's tempting to invest in NewMarket for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for NewMarket you should know about.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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