Valhi (NYSE:VHI) Has Announced A Dividend Of $0.08

The board of Valhi, Inc. (NYSE:VHI) has announced that it will pay a dividend on the 21st of September, with investors receiving $0.08 per share. This means that the annual payment will be 2.5% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Valhi

Valhi Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the dividend made up 134% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

If the company can't turn things around, EPS could fall by 51.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 225%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $2.40 in 2013, and the most recent fiscal year payment was $0.32. Dividend payments have fallen sharply, down 87% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Valhi's earnings per share has shrunk at 51% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

We're Not Big Fans Of Valhi's Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Valhi make more consistent payments in the future. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Valhi has 4 warning signs (and 2 which make us uncomfortable) we think you should know about. Is Valhi not quite the opportunity you were looking for? Why not check out 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.