Kronos Worldwide, Inc. (NYSE:KRO) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Kronos Worldwide's shares before the 29th of November in order to be eligible for the dividend, which will be paid on the 12th of December.

The company's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Calculating the last year's worth of payments shows that Kronos Worldwide has a trailing yield of 1.7% on the current share price of US$11.68. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Kronos Worldwide

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Kronos Worldwide generated enough free cash flow to afford its dividend. It paid out 110% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Kronos Worldwide paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Kronos Worldwide's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Kronos Worldwide's earnings per share have dropped 14% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kronos Worldwide has seen its dividend decline 10% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Has Kronos Worldwide got what it takes to maintain its dividend payments? Kronos Worldwide had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Kronos Worldwide and want to know more, you'll find it very useful to know what risks this stock faces. For example, Kronos Worldwide has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.