Readers hoping to buy Tronox Holdings plc (NYSE:TROX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 14th of May, you won't be eligible to receive this dividend, when it is paid on the 28th of May.
Tronox Holdings's next dividend payment will be US$0.08 per share, and in the last 12 months, the company paid a total of US$0.32 per share. Last year's total dividend payments show that Tronox Holdings has a trailing yield of 1.4% on the current share price of $23.57. 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! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tronox Holdings is paying out just 4.4% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Tronox Holdings generated enough free cash flow to afford its dividend. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Tronox 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Tronox Holdings has grown its earnings rapidly, up 81% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Tronox Holdings looks like a promising growth company.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tronox Holdings's dividend payments per share have declined at 12% per year on average over the past nine years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Should investors buy Tronox Holdings for the upcoming dividend? Tronox Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Tronox Holdings, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Tronox Holdings is facing. For example, we've found 7 warning signs for Tronox Holdings (2 are a bit unpleasant!) that deserve your attention before investing in the shares.
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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