Lachish Industries Ltd (TLV:LHIS) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lachish Industries Ltd (TLV:LHIS) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Lachish Industries' shares before the 27th of August in order to be eligible for the dividend, which will be paid on the 10th of September.

The company's next dividend payment will be ₪0.34 per share, and in the last 12 months, the company paid a total of ₪0.60 per share. Based on the last year's worth of payments, Lachish Industries has a trailing yield of 2.8% on the current stock price of ₪21.65. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Lachish Industries

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Lachish Industries paying out a modest 28% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 93% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Lachish Industries paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Lachish Industries's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Lachish Industries's earnings have been skyrocketing, up 29% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lachish Industries has delivered 9.1% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Lachish Industries an attractive dividend stock, or better left on the shelf? We like that Lachish Industries has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, while it has some positive characteristics, we're not inclined to race out and buy Lachish Industries today.

So while Lachish Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Lachish Industries has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.