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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lifetime Brands, Inc. (NASDAQ:LCUT) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Meaning, you will need to purchase Lifetime Brands' shares before the 28th of January to receive the dividend, which will be paid on the 14th of February.
The company's next dividend payment will be US$0.043 per share. Last year, in total, the company distributed US$0.17 to shareholders. Based on the last year's worth of payments, Lifetime Brands stock has a trailing yield of around 1.2% on the current share price of $14.15. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Lifetime Brands paid out just 9.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Lifetime Brands's earnings per share have been growing at 13% a year for the past five years. Lifetime Brands has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Lifetime Brands has lifted its dividend by approximately 5.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Lifetime Brands is keeping back more of its profits to grow the business.
To Sum It Up
Is Lifetime Brands worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Lifetime Brands looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Lifetime Brands for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Lifetime Brands (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.