The board of Ardagh Group S.A. (NYSE:ARD) has announced that it will pay a dividend of US$0.15 per share on the 1st of October. The dividend yield will be 2.5% based on this payment which is still above the industry average.
Ardagh Group Might Find It Hard To Continue The Dividend
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This is quite a strong warning sign that the dividend may not be sustainable.
Over the next year, EPS might fall by 4.3% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Ardagh Group Is Still Building Its Track Record
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. The first annual payment during the last 4 years was US$0.56 in 2017, and the most recent fiscal year payment was US$0.60. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
Ardagh Group May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Ardagh Group has seen earnings per share falling at 4.3% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
We're Not Big Fans Of Ardagh Group's Dividend
Overall, while some might be pleased that the dividend wasn't cut, we think this may help Ardagh Group make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Ardagh Group (1 is potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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