Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Delek US Holdings, Inc. (NYSE:DK) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 9th of March to receive the dividend, which will be paid on the 24th of March.
Delek US Holdings's next dividend payment will be US$0.31 per share. Last year, in total, the company distributed US$1.20 to shareholders. Calculating the last year's worth of payments shows that Delek US Holdings has a trailing yield of 6.7% on the current share price of $18.59. 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 check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see Delek US Holdings paying out a modest 28% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.
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 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 Delek US Holdings earnings per share are up 3.6% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Delek US Holdings has increased its dividend at approximately 24% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Delek US Holdings worth buying for its dividend? Earnings per share growth has been modest, and it's interesting that Delek US Holdings is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. To summarise, Delek US Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.
In light of that, while Delek US Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 4 warning signs for Delek US Holdings (1 can't be ignored!) that deserve your attention before investing in the shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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