Elementis (LON:ELM) Will Pay A Larger Dividend Than Last Year At $0.0228

Elementis plc's (LON:ELM) dividend will be increasing from last year's payment of the same period to $0.0228 on 30th of May. Based on this payment, the dividend yield for the company will be 3.4%, which is fairly typical for the industry.

Our free stock report includes 1 warning sign investors should be aware of before investing in Elementis. Read for free now.

Estimates Indicate Elementis' Dividend Coverage Likely To Improve

We aren't too impressed by dividend yields unless they can be sustained over time. While Elementis is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 15%, so there isn't too much pressure on the dividend.

See our latest analysis for Elementis

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was $0.141, compared to the most recent full-year payment of $0.058. Doing the maths, this is a decline of about 8.5% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 13% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Elementis' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Elementis will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Elementis that investors need to be conscious of moving forward. Is Elementis not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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