LCI Industries (NYSE:LCII) Pays A US$1.05 Dividend In Just Four Days

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that LCI Industries (NYSE:LCII) is about to go ex-dividend in just four 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. Thus, you can purchase LCI Industries' shares before the 30th of August in order to receive the dividend, which the company will pay on the 13th of September.

The company's next dividend payment will be US$1.05 per share, on the back of last year when the company paid a total of US$4.20 to shareholders. Looking at the last 12 months of distributions, LCI Industries has a trailing yield of approximately 3.5% on its current stock price of US$120.12. If you buy this business for its dividend, you should have an idea of whether LCI Industries's dividend is reliable and sustainable. So we need to investigate whether LCI Industries can afford its dividend, and if the dividend could grow.

Check out our latest analysis for LCI Industries

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. Its dividend payout ratio is 88% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether LCI Industries generated enough free cash flow to afford its dividend. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that LCI Industries'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that LCI Industries's earnings are down 4.2% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. LCI Industries has delivered an average of 7.7% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. LCI Industries is already paying out 88% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

From a dividend perspective, should investors buy or avoid LCI Industries? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

So if you want to do more digging on LCI Industries, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 1 warning sign for LCI Industries you should know about.

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

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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.