Lincoln Electric Holdings, Inc. (NASDAQ:LECO) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 30th of March, you won't be eligible to receive this dividend, when it is paid on the 15th of April.
Lincoln Electric Holdings's upcoming dividend is US$0.49 a share, following on from the last 12 months, when the company distributed a total of US$1.96 per share to shareholders. Based on the last year's worth of payments, Lincoln Electric Holdings has a trailing yield of 2.9% on the current stock price of $68.6. 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! As a result, readers should always check whether Lincoln Electric Holdings has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Lincoln Electric Holdings's payout ratio is modest, at just 40% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 35% of its free cash flow in the past year.
It's positive to see that Lincoln Electric Holdings'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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Lincoln Electric Holdings earnings per share are up 8.0% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lincoln Electric Holdings has delivered 14% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has Lincoln Electric Holdings got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Lincoln Electric Holdings 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. It might be nice to see earnings growing faster, but Lincoln Electric Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Lincoln Electric Holdings is facing. In terms of investment risks, we've identified 2 warning signs with Lincoln Electric Holdings and understanding them should be part of your investment process.
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.
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