Treatt plc's (LON:TET) investors are due to receive a payment of ￡0.026 per share on 15th of August. Even though the dividend went up, the yield is still quite low at only 1.8%.

View our latest analysis for Treatt

Treatt's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Treatt was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 53.8%. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.

Treatt Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ￡0.037 in 2014, and the most recent fiscal year payment was ￡0.0801. This means that it has been growing its distributions at 8.0% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 3.0% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 3.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

We Really Like Treatt's Dividend

Overall, a dividend increase is always good, and we think that Treatt is a strong income stock thanks to its track record and growing earnings. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Treatt 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.