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 LyondellBasell Industries N.V. (NYSE:LYB) is about to go ex-dividend in just three days. Investors can purchase shares before the 28th of August in order to be eligible for this dividend, which will be paid on the 8th of September.
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 stock has a trailing yield of around 6.4% on the current share price of $65.67. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.
View our latest analysis for LyondellBasell Industries
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. LyondellBasell Industries paid out 69% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.
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.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. 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 5.5% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, LyondellBasell Industries has increased its dividend at approximately 30% a year on average. That’s interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company’s profits. This can be valuable for shareholders, but it can’t go on forever.
To Sum It Up
Is LyondellBasell Industries an attractive dividend stock, or better left on the shelf? It’s never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We’re aware though that if earnings continue to decline, the dividend could be at risk. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
Although, if you’re still interested in LyondellBasell Industries and want to know more, you’ll find it very useful to know what risks this stock faces. For example – LyondellBasell Industries has 3 warning signs we think you should be aware of.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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