FMC Corporation’s (NYSE:FMC) dividend is being reduced from last year’s payment covering the same period to $0.08 on the 15th of January. Despite the cut, the dividend yield of 2.4% will still be comparable to other companies in the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. FMC’s stock price has reduced by 62% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
FMC’s Future Dividend Projections Seem Positive
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even though FMC is not generating a profit, it is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.
According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 21%, which makes us pretty comfortable with the sustainability of the dividend.
Dividend Volatility
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was $0.66, compared to the most recent full-year payment of $0.32. Doing the maths, this is a decline of about 7.0% per year. Declining dividends isn’t generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth May Be Hard To Achieve
Given that the track record hasn’t been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though FMC’s EPS has declined at around 3.0% a year. A modest decline in earnings isn’t great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
We’re Not Big Fans Of FMC’s Dividend
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company seems to be stretching itself a bit to make such big payments, but it doesn’t appear they can be consistent over time. The dividend doesn’t inspire confidence that it will provide solid income in the future.