LyondellBasell Industries N.V. (NYSE:LYB) stock is about to trade ex-dividend in 3 days. Investors can purchase shares before the 27th of November in order to be eligible for this dividend, which will be paid on the 7th of December.
LyondellBasell Industries's upcoming dividend is US$1.05 a share, following on from the last 12 months, when the company distributed a total of US$4.20 per share to shareholders. Based on the last year's worth of payments, LyondellBasell Industries has a trailing yield of 5.1% on the current stock price of $81.65. If you buy this business for its dividend, you should have an idea of whether LyondellBasell Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. LyondellBasell Industries distributed an unsustainably high 119% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether LyondellBasell Industries generated enough free cash flow to afford its dividend. It paid out 94% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Cash is slightly more important than profit from a dividend perspective, but given LyondellBasell Industries's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by LyondellBasell Industries's 15% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, LyondellBasell Industries has lifted its dividend by approximately 27% a year on average. 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. LyondellBasell Industries is already paying out 119% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Is LyondellBasell Industries worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (119%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of LyondellBasell Industries.
With that being said, if you're still considering LyondellBasell Industries as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 5 warning signs for LyondellBasell Industries and you should be aware of them before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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