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International Paper Company (NYSE:IP) will pay a dividend of $0.4625 on the 15th of June. This makes the dividend yield 5.8%, which will augment investor returns quite nicely.
View our latest analysis for International Paper
International Paper's Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, International Paper was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 76% indicates it is more focused on returning cash to shareholders than growing the business.
Looking forward, earnings per share is forecast to fall by 20.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 50%, which we are pretty comfortable with and we think is feasible on an earnings basis.
International Paper Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.05 in 2013 to the most recent total annual payment of $1.85. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
International Paper May Find It Hard To Grow The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. International Paper has seen earnings per share falling at 3.0% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
In Summary
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 International Paper is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for International Paper that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.