Could Lifetime Brands, Inc. (NASDAQ:LCUT) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Lifetime Brands is a new dividend aristocrat in the making. It sure looks interesting on these metrics – but there’s always more to the story . Some simple analysis can offer a lot of insights when buying a company for its dividend, and we’ll go through this below.
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. While Lifetime Brands pays a dividend, it reported a loss over the last year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
Lifetime Brands’s cash payout ratio last year was 17%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.
Is Lifetime Brands’s Balance Sheet Risky?
Given Lifetime Brands is paying a dividend but reported a loss over the past year, we need to check its balance sheet for signs of financial distress. A quick check of its financial situation can be done with two ratios: net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and net interest cover. Net debt to EBITDA measures total debt load relative to company earnings (lower = less debt), while net interest cover measures the ability to pay interest on the debt (higher = greater ability to pay interest costs). With net debt of 5.15 times its EBITDA, Lifetime Brands could be described as a highly leveraged company. While some companies can handle this level of leverage, we’d be concerned about the dividend sustainability if there was any risk of an earnings downturn.
We calculated its interest cover by measuring its earnings before interest and tax (EBIT), and dividing this by the company’s net interest expense. Interest cover of 1.47 times its interest expense is starting to become a concern for Lifetime Brands, and be aware that lenders may place additional restrictions on the company as well. Low interest cover and high debt can create problems right when the investor least needs them, and we’re reluctant to rely on the dividend of companies with these traits.
Remember, you can always get a snapshot of Lifetime Brands’s latest financial position, by checking our visualisation of its financial health.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The first recorded dividend for Lifetime Brands, in the last decade, was nine years ago. Its dividend has not fluctuated much that time, which we like, but we’re conscious that the company might not yet have a track record of maintaining dividends in all economic conditions. During the past nine-year period, the first annual payment was US$0.10 in 2011, compared to US$0.17 last year. Dividends per share have grown at approximately 6.1% per year over this time.
Lifetime Brands has been growing its dividend at a decent rate, and the payments have been stable despite the short payment history. This is a positive start.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Lifetime Brands’s EPS have fallen by approximately 47% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We’re not keen on the fact that Lifetime Brands paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Earnings per share have been falling, and the company has a relatively short dividend history – shorter than we like, anyway. Overall, Lifetime Brands falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we’ve come accross 4 warning signs for Lifetime Brands you should be aware of, and 1 of them makes us a bit uncomfortable.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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