Stock Analysis

Is It Smart To Buy Louisiana-Pacific Corporation (NYSE:LPX) Before It Goes Ex-Dividend?

NYSE:LPX
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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 Louisiana-Pacific Corporation (NYSE:LPX) is about to go ex-dividend in just three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Louisiana-Pacific's shares on or after the 27th of February, you won't be eligible to receive the dividend, when it is paid on the 13th of March.

The company's upcoming dividend is US$0.28 a share, following on from the last 12 months, when the company distributed a total of US$1.12 per share to shareholders. Last year's total dividend payments show that Louisiana-Pacific has a trailing yield of 1.1% on the current share price of US$98.71. If you buy this business for its dividend, you should have an idea of whether Louisiana-Pacific's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Louisiana-Pacific

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. Louisiana-Pacific paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

historic-dividend
NYSE:LPX Historic Dividend February 23rd 2025

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Louisiana-Pacific earnings per share are up 5.2% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Louisiana-Pacific has delivered 12% dividend growth per year on average over the past seven years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Louisiana-Pacific worth buying for its dividend? Earnings per share growth has been growing somewhat, and Louisiana-Pacific is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Louisiana-Pacific is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

Ever wonder what the future holds for Louisiana-Pacific? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

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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.

About NYSE:LPX

Louisiana-Pacific

Provides building solutions primarily for use in new home construction, repair and remodeling, and outdoor structure markets.

Outstanding track record with flawless balance sheet.