Luminex Corporation (NASDAQ:LMNX) stock is about to trade ex-dividend in four days. Ex-dividend means that investors that purchase the stock on or after the 23rd of September will not receive this dividend, which will be paid on the 15th of October.
Luminex’s upcoming dividend is US$0.09 a share, following on from the last 12 months, when the company distributed a total of US$0.36 per share to shareholders. Last year’s total dividend payments show that Luminex has a trailing yield of 1.5% on the current share price of $24.76. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Luminex
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Luminex paid out 144% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Luminex generated enough free cash flow to afford its dividend. Dividends consumed 66% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s good to see that while Luminex’s dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we’d be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re discomforted by Luminex’s 23% 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. Luminex has delivered an average of 11% per year annual increase in its dividend, based on the past four years of dividend payments. 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. Luminex is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.
From a dividend perspective, should investors buy or avoid Luminex? Earnings per share have been in decline, which is not encouraging. Additionally, Luminex is paying out quite a high percentage of its earnings, and more than half its cash flow, so it’s hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Luminex. To help with this, we’ve discovered 2 warning signs for Luminex that you should be aware of before investing in their 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.
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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