Lindsay Corporation (NYSE:LNN) is about to trade ex-dividend in the next four days. You can purchase shares before the 13th of November in order to receive the dividend, which the company will pay on the 30th of November.
Lindsay's upcoming dividend is US$0.32 a share, following on from the last 12 months, when the company distributed a total of US$1.28 per share to shareholders. Based on the last year's worth of payments, Lindsay has a trailing yield of 1.1% on the current stock price of $112.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Lindsay can afford its dividend, and if the dividend could grow.
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. Fortunately Lindsay's payout ratio is modest, at just 35% of profit. A useful secondary check can be to evaluate whether Lindsay generated enough free cash flow to afford its dividend. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Lindsay, with earnings per share up 9.9% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lindsay has delivered 15% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Is Lindsay worth buying for its dividend? Earnings per share growth has been modest, and it's interesting that Lindsay is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. All things considered, we are not particularly enthused about Lindsay from a dividend perspective.
Ever wonder what the future holds for Lindsay? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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