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Westlake Chemical Raised Its Quarterly Dividend 10%

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Westlake Chemical raised its quarterly dividend

Westlake Chemical (WLK) will pay a dividend of $0.21 per share on September 18, 2017. To utilize the dividend, investors should hold the stock on or before the record date of September 1, 2017. It’s Westlake Chemical’s 52nd dividend payment without any interruption.

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Dividend growth

Westlake Chemical’s dividend of $0.21 represents 10.20% growth—compared to its previous quarterly dividend. For fiscal 2017, Westlake Chemical is expected to pay a dividend of $0.8012 per share—compared to $0.7442 per share, which implies growth of 7.7% on a year-over-year basis. Since 2012, Westlake Chemical’s dividend has grown at a CAGR (compound annual growth rate) of 8.90%.

Free cash flow

Free cash flow is a very important component of a company. A positive free cash flow is required to finance dividend payments, debt repayments, expansion activities, and much more. We’ll see if Westlake Chemical’s free cash flow is strong enough to support its dividend growth. For our understanding, we’ll convert Westlake Chemical’s free cash flow into free cash flow per share.

At the end of 2Q17, Westlake Chemical has generated free cash flow per share of $1.53. However, from 2012 to 2016, Westlake Chemical’s free cash flow per share remained volatile and showed a CAGR of -1.70%. It indicates that Westlake Chemical’s free cash flow can’t support its strong dividend growth in the long run. A major part of the free cash flow will be used to pay the dividend, which leaves less for other activities.

Investors looking for indirect exposure to Westlake Chemical can invest in the First Trust Materials AlphaDEX Fund (FXZ), which has invested 3.80% of its portfolio in the company. The fund also provides exposure to Alcoa (AA), Owens Corning (OC), and LyondellBasell (LYB) with weights of 3.40%. 3.60%, and 2.90%, respectively, as of August 28, 2017.

In the next part, we’ll look at Westlake Chemical’s dividend yield and dividend payout.

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