Should You Buy James Latham plc (LON:LTHM) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see James Latham plc (LON:LTHM) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 31st of December to receive the dividend, which will be paid on the 29th of January.

James Latham's next dividend payment will be UK£0.057 per share. Last year, in total, the company distributed UK£0.15 to shareholders. Last year's total dividend payments show that James Latham has a trailing yield of 1.7% on the current share price of £9.15. If you buy this business for its dividend, you should have an idea of whether James Latham's dividend is reliable and sustainable. So we need to investigate whether James Latham can afford its dividend, and if the dividend could grow.

View our latest analysis for James Latham

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately James Latham's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether James Latham generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit James Latham paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see James Latham earnings per share are up 6.4% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, James Latham has lifted its dividend by approximately 7.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy James Latham for the upcoming dividend? Earnings per share have been growing moderately, and James Latham is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but James Latham is being conservative with its dividend payouts and could still perform reasonably over the long run. James Latham looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Keen to explore more data on James Latham's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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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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.
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