Vulcan Materials Company (NYSE:VMC) will increase its dividend on the 24th of March to $0.49, which is 6.5% higher than last year's payment from the same period of $0.46. Despite this raise, the dividend yield of 0.8% is only a modest boost to shareholder returns.

View our latest analysis for Vulcan Materials

Vulcan Materials' 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. Before making this announcement, Vulcan Materials was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 58.4%. 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.

Vulcan Materials Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.20 in 2015, and the most recent fiscal year payment was $1.84. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See Vulcan Materials' Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Vulcan Materials has grown earnings per share at 8.1% per year over the past five years. Vulcan Materials definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Vulcan Materials' Dividend

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. 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 Vulcan Materials that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.