The Mosaic Company (NYSE:MOS) will pay a dividend of $0.21 on the 19th of December. This will take the annual payment to 3.2% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for Mosaic
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Before making this announcement, Mosaic’s was paying out quite a large proportion of earnings and 89% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
The next year is set to see EPS grow by 94.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was $1.00, compared to the most recent full-year payment of $0.84. The dividend has shrunk at around 1.7% a year during that period. A company that decreases its dividend over time generally isn’t what we are looking for.
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Mosaic has seen EPS rising for the last five years, at 31% per annum. However, Mosaic isn’t reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
In summary, while it’s always good to see the dividend being raised, we don’t think Mosaic’s payments are rock solid. The company hasn’t been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we’ve identified 2 warning signs for Mosaic that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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