IFF’s Q2 2018 dividend
On July 6, International Flavors & Fragrances (IFF) is set to pay its Q2 2018 cash dividend to common equity shareholders as of June 25. IFF announced a dividend rate of $0.69 per share for the second quarter, implying 7.8% year-over-year growth.
At the end of Q1 2018, IFF had ~79.4 million outstanding shares. Assuming IFF doesn’t buy back any shares before the record date, it will be paying ~$54.8 million in dividends. Peers Sensient Technologies (SXT), Clorox (CLX), and Estée Lauder (EL) paid Q1 2018 dividends of $0.33, $0.96, and $0.38 per share, respectively.
Could IFF’s dividend growth be hampered?
Since 2013, IFF’s dividend has grown at a compound annual rate of 13.6%. Going forward, IFF may have difficulty maintaining this level of dividend growth unless its FCF (free cash flow) grows significantly.
Its deal to buy Frutarom for $7.2 billion in cash and stock would increase IFF’s number of outstanding shares. As a result, IFF might find it difficult to increase its dividend rate with its present FCF. Also, IFF’s FCF has helped it meet its dividend payments.
However, the percentage of FCF it uses to pay dividends has risen significantly, from 32% in 2013 to 78.7% by the end of 2017. In Q1 2018, IFF’s FCF was negative. If IFF uses ~80% of its FCF to pay dividends, it could be left with very little for expansion and other activities. Investors can indirectly hold IFF through the Materials Select Sector SPDR ETF (XLB), which had invested 1.7% of its portfolio in IFF as of June 21.