LANXESS' (ETR:LXS) Shareholders Will Receive A Bigger Dividend Than Last Year

Simply Wall St
April 04, 2022
Source: Shutterstock

The board of LANXESS Aktiengesellschaft (ETR:LXS) has announced that it will be increasing its dividend on the 30th of May to €1.05. Even though the dividend went up, the yield is still quite low at only 2.6%.

View our latest analysis for LANXESS

LANXESS' Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, LANXESS' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 54.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.

XTRA:LXS Historic Dividend April 3rd 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was €0.85, compared to the most recent full-year payment of €1.05. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, LANXESS has only grown its earnings per share at 3.9% per annum over the past five years. Growth of 3.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think LANXESS will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think LANXESS is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for LANXESS (1 is a bit concerning!) that you should be aware of before investing. Is LANXESS not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.