Valhi's (NYSE:VHI) Dividend Will Be $0.08

The board of Valhi, Inc. (NYSE:VHI) has announced that it will pay a dividend of $0.08 per share on the 26th of March. The dividend yield will be 2.5% based on this payment which is still above the industry average.

View our latest analysis for Valhi

Valhi Might Find It Hard To Continue The Dividend

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even though Valhi is not generating a profit, it is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Over the next year, EPS might fall by 28.1% based on recent performance. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

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Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $2.40 in 2014 to the most recent total annual payment of $0.32. This works out to a decline of approximately 87% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Valhi's earnings per share has shrunk at 28% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Valhi's Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Valhi that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.