Should You Buy Lifetime Brands, Inc. (NASDAQ:LCUT) For Its Upcoming Dividend?
Readers hoping to buy Lifetime Brands, Inc. (NASDAQ:LCUT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Lifetime Brands' shares on or after the 30th of July, you won't be eligible to receive the dividend, when it is paid on the 16th of August.
The company'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 stock has a trailing yield of around 1.2% on the current share price of $14.7. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Lifetime Brands
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Lifetime Brands has a low and conservative payout ratio of just 13% of its income after tax. 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 8.1% 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Lifetime Brands, with earnings per share up 8.7% on average over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lifetime Brands has delivered an average of 5.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Lifetime Brands got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Lifetime Brands is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Lifetime Brands is halfway there. Lifetime Brands looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Lifetime Brands is facing. For example, Lifetime Brands has 2 warning signs (and 1 which is a bit concerning) we think you should know about.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
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