Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Amphenol Corporation (NYSE:APH) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 16th of September in order to be eligible for this dividend, which will be paid on the 9th of October.
Amphenol's next dividend payment will be US$0.25 per share. Last year, in total, the company distributed US$1.00 to shareholders. Looking at the last 12 months of distributions, Amphenol has a trailing yield of approximately 1.1% on its current stock price of $89.6. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Amphenol has a low and conservative payout ratio of just 23% of its income after tax. A useful secondary check can be to evaluate whether Amphenol generated enough free cash flow to afford its dividend. Fortunately, it paid out only 26% of its free cash flow in the past year.
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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Amphenol's earnings per share have been growing at 15% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Amphenol has lifted its dividend by approximately 42% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Should investors buy Amphenol for the upcoming dividend? Amphenol 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. There's a lot to like about Amphenol, and we would prioritise taking a closer look at it.
Wondering what the future holds for Amphenol? See what the 12 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.