Excessive Dividend 50: Kronos Worldwide

Up to date on June 18th, 2024 by Nathan Parsh

Excessive-yield shares pay out dividends which are considerably greater than market common dividends. For instance, the S&P 500’s present yield is barely ~1.3%.

Excessive-yield shares could be very useful to shore up revenue after retirement. A $120,000 funding in shares with a mean dividend yield of 5% creates a mean of $500 a month in dividends.

Few firms within the specialty chemical substances trade have a historical past of paying constant dividends over an extended time frame.

Kronos Worldwide, Inc. (KRO) is likely one of the most loyal dividend payers within the specialty chemical substances trade, although this can be a tough trade to navigate.

The corporate is at the moment buying and selling with a stable 5.6% yield, that means it is likely one of the high-yield shares in our database.

Kronos is a part of our ‘Excessive Dividend 50’ collection, the place we cowl the 50 highest yielding shares within the Positive Evaluation Analysis Database.

You’ll be able to obtain your free full record of all securities with 5%+ yields (together with essential monetary metrics akin to dividend yield and payout ratio) by clicking on the hyperlink under:

On this article, we’ll analyze the prospects of Kronos Worldwide.

Enterprise Overview

Kronos Worldwide is an organization that makes a speciality of the manufacturing of titanium dioxide pigments, that are primarily used to reinforce the colour and brightness of merchandise like paint, cosmetics, and plastics.

It’s fairly essential to stipulate the corporate’s possession construction:

• Kronos Worldwide went public in 2003 and is a subsidiary of Valhi Inc. (NYSE: VHI), which owns 50% of the corporate’s excellent inventory.
• Additional, a subsidiary of NL Industries, Inc. (NYSE: NL) holds about 30% of the inventory.
• Then, Valhi holds about 83% of NL’s excellent frequent inventory, and a wholly-owned subsidiary of Contran Company holds roughly 92% of Valhi’s excellent frequent inventory.
• Lastly, a majority of Contran’s excellent voting inventory is managed straight by Lisa Okay. Simmons and numerous household trusts that exist for the advantage of Ms. Simmons.

Thus, shares have a restricted buying and selling quantity, whereas the advantages of frequent shareholders might not be prioritized, which is one thing that potential traders must be cautious about.

Total, Kronos’ outcomes have been risky however usually favorable. Whereas this can be a pure commodity enterprise, Kronos traditionally has been a powerful operator with disciplined value controls.

Nonetheless, the corporate’s cyclical enterprise mannequin can simply result in unfavorable buying and selling durations, as was the case all through most of 2023.

Nonetheless, the corporate’s most up-to-date quarterly report confirmed a return to progress. Launched on Might eighth, 2024, income grew 12.3% to $479 million whereas earnings-per-share of $0.07 improved from a lack of $0.13 within the prior 12 months.

Value for TiO2 had been decrease 11% for the quarter, however this was greater than offset by a 28% surge in quantity as demand improved.

This quarter was a lot better than the previous few, reflecting the primary actual power that we now have seen from Kronos since 2022. Because of this, we at the moment are barely extra optimistic for the corporate’s 2024 outlook. Regardless of excessive rates of interest and weak finish market demand in sure areas of the enterprise, Kronos seems to be on an enhancing trajectory.

Progress Prospects

Kronos operates in a really cyclical trade, with its outcomes being extremely vulnerable to the underlying motion of titanium dioxide costs.

Thus, Kronos has had a fluctuating efficiency when it comes to its earnings-per-share over time. It has posted durations of incomes as a lot as $2.20 per share in 2018, but additionally skilled losses, like the corporate did in 2023.

The corporate has not made any important investments or acquisitions that will change its long-term earnings potential. Nearly all of Kronos’ income is tied to TiO2, that means that value and quantity swings in both route weigh closely on the corporate.

It additionally has not accomplished any main repurchases of shares both, which has prevented the potential for progress in earnings-per-share by way of that technique.

Total, we anticipate Kronos, on common, to publish related incomes outcomes as in earlier years shifting ahead.

Aggressive Benefits & Recession Efficiency

Kronos estimates it’s the largest producer of TiO2 in Europe, with near 50% of gross sales volumes attributable to markets in Europe.

Because of this the corporate has a big benefit over smaller opponents relating to managing its TiO2 provide and being extra environment friendly.

The corporate additionally has minimal web debt, which stands near $239 million as of the top of 2023. Thus, the continued rise in rates of interest shouldn’t be an enormous menace to the corporate.

Working in a extremely cyclical trade implies that Kronos is vulnerable to the affect of a recession.

The corporate noticed a drastic decline in earnings-per-share in the course of the Nice Recession:

• 2007 earnings-per-share: -$1.36
• 2008 earnings-per-share: $0.18
• 2009 earnings-per-share: -$0.71

Whereas outcomes did enhance in 2008, the corporate reverted to a loss the very subsequent 12 months. The corporate carried out a lot better in the course of the worst of the Covid-19 pandemic as earnings-per-share fell simply 5% in 2020 earlier than rebounding to progress the very subsequent 12 months.

Dividend Evaluation

Kronos has a multi-layered possession construction, the place it’s owned by different subsidiary firms, and its primary objective is to distribute earnings to the upper ranges of possession, with the last word beneficiary being a belief managed by Ms. Simmons.

This offers elevated confidence that the dividend will stay a precedence of the Board of Administrators, as has been the case in the course of the firm’s historical past.

Kronos did droop the dividend in the course of the Nice Monetary Disaster, nevertheless it was shortly reinstated in 2010. By 2011, the dividend had already vastly exceeded its pre-2007 ranges, whereas it has both been maintained or elevated since. The corporate final raised its dividend for the March 2022 cost.

Kronos has a projected payout ratio of 121% for 2024. We don’t forecast extra dividend will increase over the subsequent 5 years, which might drive the payout ratio to 99% by 2029.

For context, Kronos has a way more cheap common payout ratio of 49% during the last decade. Even for a corporation designed to distribute a excessive proportion of its earnings within the type of dividends, the payout ratio is stretched to the restrict in our opinion.

The clear steadiness sheet and up to date comparatively robust efficiency, we consider that Kronos’ is healthier positioned now to take care of its dividend then it was even final 12 months. Nonetheless, the excessive payout ratio for 2024 is just not sustainable long-term. Earnings-per-share might want to develop at the next charge to safeguard the corporate’s dividend.

Subsequently, we consider that the corporate’s 5.6% dividend could possibly be in danger or momentary suspension in a possible recession or a tough trade cycle.

Last Ideas

Kronos is a fairly fascinating firm. Because of its multi-layered possession construction, the corporate is designed to distribute the vast majority of its earnings, which has resulted in a constant stream of hefty payouts over time.

Regardless of the cyclical nature of its enterprise mannequin, Kronos has been prudently managed, has little debt on its steadiness sheet, and has achieved total respectable outcomes even throughout downturns in its trade.

Whereas a brief dividend lower is just not unlikely if its area of interest market stays underwater for too lengthy, it’s fairly probably that Kronos will proceed to offer shareholders with sizable dividends shifting ahead.

In case you are interested by discovering high-quality dividend progress shares and/or different high-yield securities and revenue securities, the next Positive Dividend sources shall be helpful:

Excessive-Yield Particular person Safety Analysis

Different Positive Dividend Assets