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Analyzing International Flavors and Fragrances’ 4Q16 Dividend

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Dec. 29 2016, Updated 7:37 a.m. ET

International Flavors and Fragrances declares 4Q16 dividend

On December 14, 2016, International Flavors and Fragrances (IFF) announced a dividend of $0.64 per share for 4Q16. Assuming that the announced dividend will be paid, IFF will be paying a dividend of $2.04 per share for 2016.

This amount implies a rise in IFF’s dividend of 16.5% on a year-over-year (or YoY) basis. The dividend will be paid on January 6, 2017, to shareholders of record as of December 28, 2016.

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Dividend growth

In the past five years, IFF’s annual dividend has been rising YoY. Since 2011, IFF’s annual dividend has been rising at a CAGR (compound annual growth rate) of 15.6%. In the first nine months of 2016, IFF paid $134.1 million in dividends. For 4Q16, IFF has ~79.4 million shares outstanding, and with a payment of $0.64 per share, IFF’s 4Q16 cash dividend will amount to ~$50.8 million.

Dividend payout

In the first nine months of 2016, IFF paid out ~$134.1 million as a dividend, which translated to a dividend payout ratio of ~43%. Since 2011, IFF’s dividend payout ratio has been in the range of 35%–40%. However, IFF’s management aims for a dividend payout ratio in the range of 55%–60%.

Operating cash flows and free cash flow

With IFF’s dividend rising at a CAGR of 15.6% in the past five years, we should check whether IFF’s operating cash flow is good enough to support this kind of rise.

From 2011 to 2015, IFF’s operating cash flow rose at a CAGR of ~23.0%, and IFF’s free cash flow rose at a CAGR of ~52%. For this reason, we can say that IFF’s cash flows are strong enough to support its dividend growth.

Notably, investors can hold IFF by investing in the Guggenheim S&P 500 Equal Weight Materials ETF (RTM), which has invested 3.9% of its portfolio in IFF. The top holdings of the fund include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON) with weights of 4.2%, 4.1%, and 4.1%, respectively, as of December 26, 2016.

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