NewMarket Corporation (NYSE:NEU) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of January to $3.00. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

NewMarket's Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, NewMarket's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 15.6% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.

NewMarket Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was $5.60, compared to the most recent full-year payment of $12.00. This means that it has been growing its distributions at 7.9% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. NewMarket has impressed us by growing EPS at 16% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for NewMarket's prospects of growing its dividend payments in the future.

NewMarket Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Is NewMarket not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.