Ashland’s dividend yield
On May 25, Ashland’s (ASH) dividend yield stood at 1.2%, its lowest level on a quarterly basis since fiscal 2013.
ASH’s dividend yield has been sliding for the past six quarters. In comparison, its peers Eastman Chemical (EMN), Olin Corporation (OLN), and Westlake Chemical have dividend yields of 2.1%, 2.4%, and 0.7%, respectively.
A dividend yield measures how much cash investors get in return for every dollar they invest in a company’s equity apart from possible capital gains. Dividends provide constant cash flows for long-term investors. Before investing in a company, investors should check out its financials to see if they’re strong enough to support and sustain its current and future dividend payments.
Why Ashland’s dividend yield is declining
As the graph above suggests, Ashland’s dividend yield was at a healthy level until the fiscal first quarter of 2017, when it saw a sharp fall. The fall was primarily the result of the separation of Valvoline (VVV). As a result, ASH’s dividend rate fell from $0.39 per share to $0.23 per share. Since then, this is the first time ASH has increased its dividend rate, and it has done so by 11%. ASH’s stock price has risen close to 21%, resulting in a lower dividend yield.
At present, ASH’s dividend yield is lower than the yield generated by one-year Treasury bonds. ASH appears to be in the process of building its dividend rate to be on an upward trend again. To attract long-term and dividend investors, ASH has to increase its dividend rates more aggressively. However, ASH’s free cash flow needs to be verified before it can do so.
Investors can indirectly hold Ashland by investing in the PowerShares Russell Midcap Pure Value ETF (PXMV), which invests 1.6% of its portfolio in Ashland as of May 25.