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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lifetime Brands, Inc. (NASDAQ:LCUT) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 31st of July, you won't be eligible to receive this dividend, when it is paid on the 15th of August.
Lifetime Brands's upcoming dividend is US$0.043 a share, following on from the last 12 months, when the company distributed a total of US$0.17 per share to shareholders. Based on the last year's worth of payments, Lifetime Brands has a trailing yield of 1.9% on the current stock price of $8.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Lifetime Brands is paying out an acceptable 69% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Lifetime Brands generated enough free cash flow to afford its dividend. Luckily it paid out just 20% of its free cash flow last year.
It's positive to see that Lifetime Brands's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Lifetime Brands's earnings per share have dropped 20% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lifetime Brands has seen its dividend decline 3.8% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Should investors buy Lifetime Brands for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Lifetime Brands today.
Want to learn more about Lifetime Brands's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.