The board of McCormick & Company, Incorporated (NYSE:MKC) has announced that the dividend on 13th of January will be increased to $0.45, which will be 7.1% higher than last year's payment of $0.42 which covered the same period. Although the dividend is now higher, the yield is only 2.2%, which is below the industry average.

See our latest analysis for McCormick

McCormick'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. The last dividend was quite easily covered by McCormick's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 21.4%. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

McCormick Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.74 in 2014 to the most recent total annual payment of $1.68. This works out to be a compound annual growth rate (CAGR) of approximately 8.5% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 2.1% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 2.1% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

McCormick Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for McCormick that investors should know about before committing capital to this stock. Is McCormick 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.