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How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors Grace stock exchange fifth generation trading platform be enticed in by the seemingly attractive Grace stock exchange fifth generation trading platform, and lose money when the company has to cut its dividend payments.

Grace stock exchange fifth generation trading platform

Grace stock exchange fifth generation trading platform might not know much about W. Grace's dividend prospects, even though it has been paying dividends for the last four years and offers a 1. The company also returned around 0. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1 Don't lose money, and 2 Remember rule 1.

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We'll run through some checks below to help with this. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's how to make fucking money is sustainable, relative to its net profit after tax. Grace's profits were paid out as dividends in the last 12 months. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth.

One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

Is W. R. Grace & Co. (NYSE:GRA) A Good Fit For Your Dividend Portfolio?

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. It's encouraging to see that the dividend is covered by both profit and cash flow.

Grace stock exchange fifth generation trading platform

This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously. Story continues Is W. Grace's Balance Sheet Risky? Grace has a meaningful amount of debt, we need to check its balance sheet to see if the company might have debt risks.

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A quick check of its financial situation can be done with two ratios: net debt divided by EBITDA earnings before interest, tax, depreciation and amortisationand net interest cover. Net interest cover measures the ability to meet interest payments.

Essentially we check that a the company does not have too much debt, and b that it can afford to pay the interest.

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Grace has net debt of 4. Judicious use of debt can enhance shareholder returns, but also adds to the risk if something goes awry. We calculated its interest cover by measuring its earnings before interest and tax EBITand dividing this by the company's net interest expense.

Interest cover of 4.

Grace stock exchange fifth generation trading platform

Grace, and be aware that lenders may place additional restrictions on the company as well. Consider getting our latest analysis on W.

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Grace's financial position here. Dividend Volatility From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable.

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Looking at the data, we can see that W. Grace has been paying a dividend for the past four years.

Grace stock exchange fifth generation trading platform

The company has been paying a stable dividend for a few years now, but we'd like to see more evidence of consistency over a longer period. The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short.

Further research may be warranted.

Grace stock exchange fifth generation trading platform

Dividend Growth Potential While dividend payments have been relatively reliable, it would also be nice if earnings per share EPS were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Grace's earnings per share have been essentially flat over the past five years. Flat earnings per share are acceptable for a time, but over the long term, the purchasing power of the company's dividends could be eroded by inflation. Conclusion To summarise, shareholders should always check that W.

Grace's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested.

Earnings per share are down, and to our mind W.

Is W. R. Grace & Co. (NYSE:GRA) A Good Fit For Your Dividend Portfolio?

Grace has not been paying a dividend long enough to demonstrate its resilience across economic cycles. Ultimately, W. Grace comes up short on our dividend analysis.

Grace stock exchange fifth generation trading platform

It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 10 analysts are forecasting a turnaround in our free collection of analyst estimates here. If you spot an error that warrants correction, please contact the editor at editorial-team simplywallst.

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. Simply Wall St has no position in the stocks mentioned. We aim to bring you long-term focused research analysis driven by fundamental data.

Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.