It Might Not Be A Great Idea To Buy Luxfer Holdings PLC (NYSE:LXFR) For Its Next Dividend
Luxfer Holdings PLC (NYSE:LXFR) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Luxfer Holdings' shares before the 18th of January in order to receive the dividend, which the company will pay on the 7th of February.
The company's next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.52 to shareholders. Based on the last year's worth of payments, Luxfer Holdings stock has a trailing yield of around 6.2% on the current share price of $8.37. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Luxfer Holdings
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Luxfer Holdings distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 75% of its free cash flow as dividends, within the usual range for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Luxfer Holdings fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see how much of its profit Luxfer Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Luxfer Holdings's earnings per share have fallen at approximately 9.8% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last six years, Luxfer Holdings has lifted its dividend by approximately 0.7% a year on average.
Final Takeaway
Is Luxfer Holdings worth buying for its dividend? Earnings per share have been shrinking in recent times. Additionally, Luxfer Holdings is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Bottom line: Luxfer Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
So if you're still interested in Luxfer Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 3 warning signs with Luxfer Holdings and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
