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Is It Smart To Buy AmerisourceBergen Corporation (NYSE:ABC) Before It Goes Ex-Dividend?

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It looks like AmerisourceBergen Corporation (NYSE:ABC) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase AmerisourceBergen's shares before the 13th of May in order to be eligible for the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be US$0.46 per share, and in the last 12 months, the company paid a total of US$1.84 per share. Calculating the last year's worth of payments shows that AmerisourceBergen has a trailing yield of 1.2% on the current share price of $159.01. If you buy this business for its dividend, you should have an idea of whether AmerisourceBergen's dividend is reliable and sustainable. As a result, readers should always check whether AmerisourceBergen has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for AmerisourceBergen

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. AmerisourceBergen has a low and conservative payout ratio of just 22% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 13% of its free cash flow last year.

It's positive to see that AmerisourceBergen's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at AmerisourceBergen, with earnings per share up 4.1% on average over the last five years. AmerisourceBergen is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

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 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is AmerisourceBergen worth buying for its dividend? Earnings per share growth has been growing somewhat, and AmerisourceBergen is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but AmerisourceBergen is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while AmerisourceBergen has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with AmerisourceBergen and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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