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Zoetis Inc. (NYSE:ZTS) will increase its dividend from last year's comparable payment on the 1st of March to $0.375. Despite this raise, the dividend yield of 1.0% is only a modest boost to shareholder returns.
See our latest analysis for Zoetis
Zoetis' Payment Has Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Zoetis was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 33.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.
Zoetis Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from $0.26 total annually to $1.50. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Zoetis has been growing its earnings per share at 18% a year over the past five years. Zoetis definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Zoetis Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Zoetis is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.
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 example, we've picked out 1 warning sign for Zoetis that investors should know about before committing capital to this stock. Is Zoetis not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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