The board of Treatt plc (LON:TET) has announced that it will be increasing its dividend by 6.4% on the 13th of March to £0.0581, up from last year’s comparable payment of £0.0546. This takes the annual payment to 1.7% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Treatt

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Treatt’s dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 34.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of £0.037 in 2015 to the most recent total annual payment of £0.0841. This implies that the company grew its distributions at a yearly rate of about 8.6% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Treatt has impressed us by growing EPS at 7.3% per year over the past five years. Treatt definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 6 analysts we track are forecasting for Treatt for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.