Incitec Pivot Limited (ASX:IPL) will increase its dividend from last year's comparable payment on the 18th of December to A$0.063. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.

See our latest analysis for Incitec Pivot

Incitec Pivot's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Incitec Pivot's Could Struggle to Maintain Dividend Payments In The Future

Incitec Pivot's Future Dividends May Potentially Be At Risk

We aren't too impressed by dividend yields unless they can be sustained over time. Despite not generating a profit, Incitec Pivot is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Over the next year, EPS is forecast to grow rapidly. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 110%.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of A$0.108 in 2014 to the most recent total annual payment of A$0.106. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Incitec Pivot's earnings per share has shrunk at 17% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Incitec Pivot's Dividend Doesn't Look Great

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Incitec Pivot that you should be aware of before investing. Is Incitec Pivot not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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