Don't Race Out To Buy AMCIL Limited (ASX:AMH) Just Because It's Going Ex-Dividend
It looks like AMCIL Limited (ASX:AMH) is about to go ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase AMCIL's shares before the 7th of August to receive the dividend, which will be paid on the 31st of August.
The company's upcoming dividend is AU$0.03 a share, following on from the last 12 months, when the company distributed a total of AU$0.04 per share to shareholders. Last year's total dividend payments show that AMCIL has a trailing yield of 4.4% on the current share price of AU$0.91. 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 AMCIL has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AMCIL distributed an unsustainably high 160% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
View our latest analysis for AMCIL
Click here to see how much of its profit AMCIL paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that AMCIL's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, AMCIL has lifted its dividend by approximately 1.3% a year on average.
Final Takeaway
From a dividend perspective, should investors buy or avoid AMCIL? AMCIL has an uncomfortably high payout ratio, and its earnings have not grown at all. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with AMCIL. For example, we've found 2 warning signs for AMCIL that we recommend you consider before investing in the business.
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.