The board of International paper company (NYSE:IP) announced that it will pay a dividend of $0.4625 per share on December 16th. Based on this payment, the dividend yield on the company's shares is 4.0%, representing an attractive increase in shareholder returns.

Check out our latest analysis for International Paper

Paying International Paper could potentially provide solid earnings coverage

If the payments aren't sustainable, a high return for a few years isn't as important. Prior to this announcement, the company's dividend was higher than its profit, accounting for 87% of cash flow. This suggests the company could focus more on returning cash to shareholders rather than reinvesting to grow the business.

Next year, EPS growth is expected to be 174.2%. Assuming that the dividend continues on its recent path, we estimate the payout ratio to be 52%, which is quite comfortable.

International Paper has a solid track record

The company has a sustained track record of paying dividends with very little fluctuation. The dividend has increased from a total annual payment of $1.40 in 2014 to the most recent total annual payment of $1.85. This results in a compound annual growth rate (CAGR) of approximately 2.8% per year for this period. While we can't deny that the dividend has been remarkably stable in the past, growth has been quite muted.

Dividend growth potential is uncertain

The company's investors will be happy to know that it has been receiving dividend income for some time. However, things don't look quite so rosy. International Paper's earnings per share have declined about 20% per year over the past five years. Dividend payments are likely to come under some pressure unless earnings per share can overcome the current slump. However, it's not all bad news, as earnings are forecast to rise over the next 12 months – we'd just be a bit cautious until it becomes a long-term trend.

International Paper's dividend doesn't look sustainable

Overall, we don't think this company is a good dividend stock, even though the dividend hasn't been cut this year. Historically, payments have been stable, but we believe the company is paying out too much for this to continue in the long term. Overall, we don't think this company has what it takes to be a good income stock.

Market movements show how important a consistent dividend policy is compared to a more unpredictable one. At the same time, there are other factors that our readers should consider before investing capital in a stock. If we take the debate a little further, we have discovered 5 warning signs for International Paper that investors need to be aware of further developments. Isn't International Paper exactly the opportunity you've been looking for? Take a look at us Selecting the top dividend stocks.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.