Louisiana-Pacific Corporation (NYSE:LPX) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 16th of August will not receive the dividend, which will be paid on the 3rd of September.
Louisiana-Pacific's upcoming dividend is US$0.14 a share, following on from the last 12 months, when the company distributed a total of US$0.54 per share to shareholders. Based on the last year's worth of payments, Louisiana-Pacific stock has a trailing yield of around 2.4% on the current share price of $22.78. If you buy this business for its dividend, you should have an idea of whether Louisiana-Pacific's dividend is reliable and sustainable. 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. Fortunately Louisiana-Pacific's payout ratio is modest, at just 38% 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. Over the past year it paid out 197% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
While Louisiana-Pacific's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Louisiana-Pacific to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Louisiana-Pacific's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Given that Louisiana-Pacific has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Has Louisiana-Pacific got what it takes to maintain its dividend payments? Earnings per share have been effectively flat over this time, and Louisiana-Pacific's paying out less than half its profits and 197% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Ever wonder what the future holds for Louisiana-Pacific? See what the ten analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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