AmerisourceBergen (NYSE:ABC) Could Be A Buy For Its Upcoming Dividend
AmerisourceBergen Corporation (NYSE:ABC) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase AmerisourceBergen's shares on or after the 9th of February, you won't be eligible to receive the dividend, when it is paid on the 27th of February.
The company's next dividend payment will be US$0.48 per share, on the back of last year when the company paid a total of US$1.94 to shareholders. Looking at the last 12 months of distributions, AmerisourceBergen has a trailing yield of approximately 1.2% on its current stock price of $156.73. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether AmerisourceBergen has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for AmerisourceBergen
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. AmerisourceBergen is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see AmerisourceBergen's earnings have been skyrocketing, up 39% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, AmerisourceBergen looks like a promising growth company.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AmerisourceBergen has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Is AmerisourceBergen an attractive dividend stock, or better left on the shelf? AmerisourceBergen has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for AmerisourceBergen that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
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