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Tronox Holdings plc (NYSE:TROX) Looks Interesting, And It's About To Pay A Dividend

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  • TROX

Readers hoping to buy Tronox Holdings plc (NYSE:TROX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Tronox Holdings' shares before the 6th of August to receive the dividend, which will be paid on the 10th of September.

The company's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Based on the last year's worth of payments, Tronox Holdings stock has a trailing yield of around 2.2% on the current share price of $18.43. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Tronox Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Tronox Holdings

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 paid out just 4.3% 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. The good news is it paid out just 12% of its free cash flow in the last year.

It's positive to see that Tronox Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Tronox Holdings's earnings have been skyrocketing, up 82% per annum for the past five years. Tronox Holdings earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tronox Holdings's dividend payments per share have declined at 9.7% per year on average over the past nine years, which is uninspiring. Tronox Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

From a dividend perspective, should investors buy or avoid Tronox Holdings? Tronox Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

So while Tronox Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 7 warning signs for Tronox Holdings (2 are significant!) that deserve your attention before investing in the shares.

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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.