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 Tronox Holdings plc (NYSE:TROX) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 30th of August in order to be eligible for this dividend, which will be paid on the 13th of September.
Tronox Holdings's next dividend payment will be US$0.045 per share, on the back of last year when the company paid a total of US$0.18 to shareholders. Based on the last year's worth of payments, Tronox Holdings has a trailing yield of 2.6% on the current stock price of $7.03. If you buy this business for its dividend, you should have an idea of whether Tronox Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Tronox Holdings has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Tronox Holdings lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Tronox Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 22% of its free cash flow in the last year.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Tronox Holdings was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tronox Holdings's dividend payments per share have declined at 22% per year on average over the past 7 years, which is uninspiring.
We update our analysis on Tronox Holdings every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Tronox Holdings worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tronox Holdings today.
Curious what other investors think of Tronox Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.