Lotte Chemical Titan Holding Berhad (KLSE:LCTITAN) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Lotte Chemical Titan Holding Berhad's shares before the 21st of March to receive the dividend, which will be paid on the 13th of April.
The company's next dividend payment will be RM0.21 per share, on the back of last year when the company paid a total of RM0.21 to shareholders. Based on the last year's worth of payments, Lotte Chemical Titan Holding Berhad has a trailing yield of 8.8% on the current stock price of MYR2.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Fortunately Lotte Chemical Titan Holding Berhad's payout ratio is modest, at just 45% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Lotte Chemical Titan Holding Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Lotte Chemical Titan Holding Berhad's earnings per share have dropped 9.4% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Lotte Chemical Titan Holding Berhad has seen its dividend decline 2.2% per annum on average over the past four years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Should investors buy Lotte Chemical Titan Holding Berhad for the upcoming dividend? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
If you're not too concerned about Lotte Chemical Titan Holding Berhad's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For instance, we've identified 2 warning signs for Lotte Chemical Titan Holding Berhad (1 doesn't sit too well with us) you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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.