The board of NewMarket Corporation (NYSE:NEU) has announced that the dividend on 1st of April will be increased to $2.75, which will be 10% higher than last year's payment of $2.50 which covered the same period. The payment will take the dividend yield to 1.8%, which is in line with the average for the industry.

Check out our latest analysis for NewMarket

NewMarket's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, NewMarket's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 16.3% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

NewMarket Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $4.40, compared to the most recent full-year payment of $10.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.6% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that NewMarket has grown earnings per share at 16% per year over the past five years. NewMarket definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

NewMarket Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that NewMarket is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for NewMarket that investors should take into consideration. Is NewMarket not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.