Read this before considering Valhi, Inc. (NYSE: VHI) for its upcoming dividend of US $ 0.08


Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see Valhi, Inc. (NYSE: VHI) is set to trade off dividend within the next 3 days. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. It is important to know the ex-dividend date because any transaction in the share must have been settled by the registration date at the latest. Thus, you can buy Valhi shares before September 1 in order to receive the dividend that the company will pay on September 23.

The company’s next dividend will be US $ 0.08 per share, compared to last year when the company paid a total of US $ 0.32 to shareholders. Looking at the last 12 months of distributions, Valhi has a sliding return of around 1.4% on its current price of $ 23.24. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. Accordingly, readers should always check whether Valhi has been able to increase its dividends or if the dividend could be reduced.

Check out our latest analysis for Valhi

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Valhi only paid 13% of its profits last year, which in our opinion is moderately low and leaves a lot of room for unforeseen circumstances. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we always need to check if the dividend is covered by the cash flow. The good thing is that dividends were well covered by free cash flow, with the company paying 5.7% of its cash flow last year.

It is positive to see that Valhi’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a larger margin of security before the dividend is cut.

Click here to see how much of his profits Valhi has paid in the last 12 months.

NYSE: VHI Historical Dividend August 28, 2021

Have profits and dividends increased?

Companies with declining profits are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. So we’re not very excited that Valhi’s profits are down 4.4% per year for the past five years.

Most investors primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Valhi’s dividend payouts per share have declined by 15% per year on average over the past 10 years, which is not inspiring. While it’s not great that earnings and dividends per share have come down in recent years, we’re encouraged that management has cut the dividend rather than risking over-committing the company in a risky attempt to maintain returns for shareholders.

The bottom line

Does Valhi have what it takes to maintain his dividend payments? Valhi has comfortably low cash and earnings payout ratios, which can mean the dividend is sustainable even in the face of a sharp drop in earnings per share. Nonetheless, we consider declining profits to be a harbinger. It might be interesting to research whether the company is reinvesting in growth projects that have the potential to increase profits and dividends going forward, but at this point we are not very optimistic about its dividend outlook.

So while Valhi looks good from a dividend standpoint, it’s still worth being aware of the risks involved in this stock. In terms of investment risks, we have identified 2 warning signs with Valhi and understanding them should be part of your investment process.

If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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