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Valhi's (NYSE:VHI) ROCE: A Lagging Indicator of Underperformance

Julian WestSaturday, Jan 4, 2025 8:32 am ET
5min read


Valhi, Inc. (NYSE: VHI) has been a stock market laggard in recent years, with its share price returning only 18% to shareholders over the past five years. This underperformance can be attributed to several factors, including the company's low return on capital employed (ROCE) and the decline in its earnings per share (EPS). In this article, we will delve into the reasons behind Valhi's underperformance and explore whether the company's dividend is sustainable.



Valhi's ROCE: A Lagging Indicator of Underperformance
Valhi's ROCE has been relatively stable over the past five years, with an average of around 5.7%. This is lower than the industry average of 8.4%, indicating that Valhi's capital allocation strategy may not be as efficient as it could be. The company's low earnings growth and steady ROCE suggest that it may not be reinvesting its earnings at a high rate, which is crucial for driving growth.

VHI Return on Capital Employed
Name
Date
Return on Capital Employed%
ValhiVHI
20240630
0.07


Valhi's Earnings Decline: A Cause for Concern
Valhi's EPS has declined by 17% per year over the past five years, raising concerns about the sustainability of the company's dividend. This decline can be attributed to several factors, including the company's low revenue growth, low ROCE, and the impact of unusual items on its profitability.

VHI Basic EPS


Valhi's Dividend: A Stable but Unsustainable Payout
Valhi's dividend payout and yield have been relatively stable over the past five years, with a few fluctuations. The company pays an annual dividend of $0.32 per share, with a yield of around 1.2% to 1.4%. However, the decline in Valhi's EPS and the company's low ROCE raise concerns about the sustainability of its dividend payout.



Conclusion
Valhi's low ROCE, declining EPS, and stable but unsustainable dividend payout indicate that the company may not be allocating its capital effectively to drive growth. To improve its ROCE and earnings, Valhi should consider reinvesting its earnings at a higher rate and exploring new opportunities for growth. Investors should be cautious when considering Valhi as a potential investment, as the company's underperformance and dividend sustainability are cause for concern.
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Brooks
01/04

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Sgsfsf
01/04
ROCE like watching paint dry, VHI needs spark
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donutloop
01/04
ROCE below avg, capital allocation suspect 🤔
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AlmightyAntwan12
01/04
5.7% ROCE ain't gonna cut it in this game. VHI needs to level up or risk being left behind.
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Shot_Ride_1145
01/04
VHI's payout stable, but growth zilch. Hmm.
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Ben280301
01/04
ROCE at 5.7% is meh, gotta look elsewhere for better returns, maybe $AAPL can show 'em how it's done.
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HairyBallsOfTheGods
01/04
Maybe VHI turns around, but not holding my breath
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JimmyCheess
01/04
VHI's EPS decline makes me nervous, holding cautiously
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fluffnstuff1
01/04
EPS drowning, dividend looks shaky. VHI gotta turn the ship around or face shareholder panic.
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infinitycurvature
01/04
ROCE stuck in the mud, VHI needs a capital boost or a new strategy. Otherwise, just spinning plates.
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NoTearsNowOnlyDreams
01/04
Dividend yield juicy, but sustainability questionable
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