Dividend-paying stocks like The Chemours Company (NYSE: CC) are generally popular with investors, and for good reason. Some research suggests that a significant portion of all equity returns come from reinvested dividends. On the other hand, investors are known to buy stocks based on their returns and lose money if the company’s dividend does not meet expectations.
In this case, Chemours should be attractive to dividend investors due to its 5.7% dividend yield and four-year payment history. We agree that the yield looks tempting. The company also bought back shares during the year, which was approximately 16% of the company’s market capitalization at the time. When buying stocks for their dividends, you should always go through the following checks to see if the dividend looks sustainable.
<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MT (0.8em) – SM" type = "text" content = " Click on the interactive chart for a full dividend analysis “data-reactid =” 29 “> Click on the interactive chart for a full dividend analysis
Companies (usually) pay dividends on their earnings. If a company pays more than it earns, the dividend may need to be cut. So we have to get an idea of whether a company’s dividend is sustainable in relation to net profit after tax. The data shows that 41% of Chemours’ earnings over the past 12 months have been paid out as a dividend. This is a mediocre margin that strikes a balance between paying dividends to shareholders and maintaining sufficient profit to invest in future growth. One of the risks is that management badly reinvest the retained capital instead of paying a higher dividend.
In addition to comparing dividends to profits, we should check whether the company has generated enough cash to pay its dividend. Although Chemours pays a dividend, it unfortunately reported negative free cash flow last year. There may be a good reason for it, but from a dividend perspective, it’s not ideal.
Is Chemours’ balance sheet risky?
Since Chemours has a significant amount of debt, we need to review its balance sheet to determine if the company may have debt risk. The financial situation can be checked quickly with two key figures: net debt divided by EBITDA (earnings before interest, taxes, depreciation and amortization) and net interest coverage. Net debt to EBITDA measures total debt to earnings (lower = less debt), while net interest coverage measures the ability to pay interest on debt (higher = higher ability to pay interest costs). Chemours has a net debt of 3.72 times its EBITDA. This is nearing the upper limit of our comfort zone for a dividend share that investors hope will exist in a variety of economic conditions.
Net interest coverage can be calculated by dividing earnings before interest and taxes (EBIT) by the company’s net interest expense. The interest coverage of 3.02 times their interest expense is becoming an increasing problem for Chemours. Note that lenders may also impose additional restrictions on the company.
We update our Chemours data every 24 hours so you always get the latest financial situation analysis.
Volatility of the dividend
One of the biggest risks of relying on dividend income is the potential for a company to run into financial difficulties and lower its dividend. Not only your income drops, but also the value of your investment – evil. Chemours has been paying a dividend for four years. The dividend hasn’t fluctuated much, but with a relatively short payment history, we can’t be sure that this is sustainable across a full market cycle. In the past four years, the first annual payment in 2015 was $ 0.12, compared to $ 1.00 in the previous year. This corresponds to an average annual growth rate (CAGR) of approximately 70% per year during this period.
Chemours raised its dividend pretty quickly, which is exciting. However, the short payment history raises the question of whether this performance will persist across a full market cycle.
Growth potential of the dividend
While dividend payments were relatively reliable, it would also be nice if earnings per share (EPS) increased, as this is essential for maintaining the dividend’s purchasing power in the long term. Although there may have been fluctuations in the past, Chemours’ earnings per share did not essentially increase as much as five years ago. The unchanged earnings per share are temporarily acceptable, but in the long term inflation could affect the purchasing power of the company’s dividends. A payout ratio of less than 50% leaves sufficient scope for reinvestments and offers financial flexibility. Unfortunately, earnings per share do not grow very much. Could this mean the company should pay a higher dividend instead?
When looking at a dividend stock, we need to judge whether the dividend will increase, whether the company is able to maintain it in a wide range of economic circumstances, and whether the dividend distribution is sustainable. First, the company has a conservative payout ratio, although we would find that cash flow was significantly below reported earnings last year. Unfortunately, there has been no profit growth, and the company’s dividend history is shorter than the 10 years that we’d ideally like to see before making a strong judgment. Ultimately, Chemours misses out on our dividend analysis. It’s not that we think it’s a bad company – just that this analysis is likely to have more attractive dividend prospects.
<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "The profit growth is generally a good sign for the future value of See if the 11 Chemours analysts we track are predicting continued growth with our company free Company analyst estimates report. “data-reactid =” 60 “> Earnings growth is generally a good sign of the future value of the company’s dividend payments. See if the 11 Chemours analysts we are tracking forecast continued growth for our company free Company analyst estimates report.
Are you looking for more profitable dividend ideas? Try our curated list of dividend stocks with a return above 3%.
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