NL Industries' (NYSE:NL) Upcoming Dividend Will Be Larger Than Last Year's
The board of NL Industries, Inc. (NYSE:NL) has announced that it will be increasing its dividend by 14% on the 21st of March to $0.08, up from last year's comparable payment of $0.07. This will take the dividend yield to an attractive 5.4%, providing a nice boost to shareholder returns.
Check out our latest analysis for NL Industries
NL Industries' Distributions May Be Difficult To Sustain
A big dividend yield for a few years doesn't mean much if it can't be sustained. While NL Industries is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Over the next year, EPS could expand by 22.9% if recent trends continue. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.50 in 2014, and the most recent fiscal year payment was $0.28. The dividend has shrunk at around 5.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Company Could Face Some Challenges Growing The Dividend
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see that NL Industries has been growing its earnings per share at 23% a year over the past five years. The company hasn't been turning a profit, but it running in the right direction. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.
Our Thoughts On NL Industries' Dividend
In summary, while it's always good to see the dividend being raised, we don't think NL Industries' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for NL Industries that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
