Looks like James Hardie Industries plc (ASX:JHX) is set to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company’s record date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. As a result, James Hardie Industries investors who buy the shares on or after May 26 will not receive the dividend, which will be paid on July 29.
The company’s next dividend is $0.30 per share, following the last 12 months when the company distributed a total of $0.60 per share to shareholders. Last year’s total dividend payout shows James Hardie Industries yielding 2.3% on the current share price of AU$36.99. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.
See our latest analysis for James Hardie Industries
If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. James Hardie Industries paid out more than half (68%) of its profits last year, which is a regular payout ratio for most companies. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. The company paid out 97% of its free cash flow in the past year, which we believe is outside the ideal range for most companies. Businesses generally need cash more than revenue – expenses don’t pay for themselves – so it’s not great to see them paying so much out of their cash flow.
While James Hardie Industries’ dividends were covered by the company’s reported earnings, cash is a bit higher, so it’s not nice to see the company didn’t generate enough cash to pay its dividend. . If it happens again, it would jeopardize James Hardie Industries’ ability to maintain its dividend.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall enough, the company could be forced to cut its dividend. For this reason, we are pleased to see that James Hardie Industries’ earnings per share have increased by 11% per year over the past five years. Earnings have been growing at a decent pace, but we fear dividend payments have eaten up most of the company’s cash flow over the past year.
Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Over the past 10 years, James Hardie Industries has increased its dividend by about 22% per year on average. Earnings per share and dividends have both increased rapidly lately, which is great to see.
Is James Hardie Industries Worth Buying For Its Dividend? Earnings per share growth is positive and the company’s payout ratio appears normal. However, we note that James Hardie Industries paid out a much higher percentage of its free cash flow, which makes us uneasy. In summary, it’s hard to get excited about James Hardie Industries from a dividend perspective.
While you’re not too concerned about James Hardie Industries’ ability to pay dividends, you should still keep in mind some of the other risks this company faces. Every business has risks, and we’ve spotted 2 warning signs for James Hardie Industries you should know.
As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.