Croda International Plc (LON:CRDA) will increase its dividend from last year's comparable payment on the 4th of October to £0.47. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

View our latest analysis for Croda International

Croda International's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Croda International's dividend was only 20% of earnings, however it was paying out 98% 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.

Over the next year, EPS is forecast to fall by 49.2%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 42%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Croda International Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of £0.584 in 2012 to the most recent total annual payment of £1.03. This means that it has been growing its distributions at 5.9% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Croda International has impressed us by growing EPS at 25% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Croda International's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Croda International's payments are rock solid. While Croda International is earning enough to cover the payments, the cash flows are lacking. We don't think Croda International is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Croda International that investors should know about before committing capital to this stock. Is Croda International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.