Stock Analysis

Lennox International (NYSE:LII) Is Increasing Its Dividend To US$1.06

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NYSE:LII
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The board of Lennox International Inc. (NYSE:LII) has announced that it will be increasing its dividend on the 15th of July to US$1.06. This makes the dividend yield about the same as the industry average at 1.8%.

See our latest analysis for Lennox International

Lennox International's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Lennox International's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 14.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

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NYSE:LII Historic Dividend June 4th 2022

Lennox International Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was US$0.72 in 2012, and the most recent fiscal year payment was US$4.24. This means that it has been growing its distributions at 19% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Lennox International has seen EPS rising for the last five years, at 13% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Lennox International's prospects of growing its dividend payments in the future.

We Really Like Lennox International's Dividend

Overall, a dividend increase is always good, and we think that Lennox International is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Lennox International that investors need to be conscious of moving forward. Is Lennox International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

What are the risks and opportunities for Lennox International?

Lennox International Inc., together with its subsidiaries, designs, manufactures, and markets a range of products for the heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally.

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Rewards

  • Earnings are forecast to grow 6.54% per year

  • Earnings have grown 9.7% per year over the past 5 years

Risks

  • Debt is not well covered by operating cash flow

  • High level of non-cash earnings

  • Significant insider selling over the past 3 months

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