Tronox Holdings plc (NYSE:TROX) is about to trade ex-dividend in the next 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. Last year, in total, the company distributed 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. We need to see whether the dividend is covered by earnings and if it’s 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. 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. With the recent loss, it’s important to check if the business generated enough cash to pay its 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Tronox Holdings has seen its dividend decline 22% per annum on average over the past 7 years, which is not great to see.
Remember, you can always get a snapshot of Tronox Holdings’s financial health, by checking our visualisation of its financial health, here.
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. Overall we’re not hugely bearish on the stock, but there are likely better dividend investments out there.
Ever wonder what the future holds for Tronox Holdings? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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