Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy and finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at McCormick’s dividend history and safety…
McCormick Business Overview and Highlights
McCormick is a $20 billion business. The company is based out of Sparks, Maryland and it employs 11,700 people. Last year McCormick pulled in $4.8 billion in sales and that breaks down to $413,000 per employee.
The company operates within the consumer sector and maintains an investment grade credit rating of BBB from the S&P. This allows McCormick to issue cheap debt to expand operations and finance other initiatives.
Last month, McCormick declared an increase in the quarterly dividend from $0.52 to $0.57. This is a sizable jump. Let’s take a look at the McCormick’s dividend history and trends…
McCormick’s Dividend History 10 Years
The company paid investors $0.88 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.88. That’s a 114% increase and you can see the annual changes below…
The compound annual growth is 7.9% over 10 years… but over the last year, the dividend climbed 9.3%. The increase in dividend growth is a good sign. McCormick might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
McCormick’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 1.53% and that’s below the 10-year average of 2.46%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividends paid divided by the net income. So a payout ratio of 60% would mean that for every $1 McCormick earns, it pays investors $0.60.
McCormick’s dividend payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s McCormick payout ratio based on free cash flow over the last 10 years…
The ratio is fairly steady over the last 10 years and the trend is down. That’s great and even better, the last reported year shows a payout ratio of 37.7%. There’s lots of room for McCormick’s board of directors to raise the dividend.
McCormick’s dividend is safe for now but the dividend yield is near historical lows so you might want to shop for better dividend stocks in the current market.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free dividend reinvestment calculator.
Good investing,
Robert
