AdvanSix (NYSE:ASIX) Could Be A Buy For Its Upcoming Dividend

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AdvanSix Inc. (NYSE:ASIX) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, AdvanSix investors that purchase the stock on or after the 12th of August will not receive the dividend, which will be paid on the 26th of August.

The company's next dividend payment will be US$0.16 per share. Last year, in total, the company distributed US$0.64 to shareholders. Calculating the last year's worth of payments shows that AdvanSix has a trailing yield of 3.5% on the current share price of US$18.39. 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! So we need to investigate whether AdvanSix can afford its dividend, and if the dividend could grow.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. AdvanSix has a low and conservative payout ratio of just 22% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 64% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that AdvanSix'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.

Check out our latest analysis for AdvanSix

Click here to see how much of its profit AdvanSix paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see AdvanSix's earnings per share have risen 14% per annum over the last five years. AdvanSix has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, AdvanSix has increased its dividend at approximately 6.4% a year on average. 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 AdvanSix worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, AdvanSix paid out less than half its earnings and a bit over half its free cash flow. AdvanSix looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while AdvanSix has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for AdvanSix and you should be aware of this before buying any 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.