Three Days Left Until Adecoagro S.A. (NYSE:AGRO) Trades Ex-Dividend
Adecoagro S.A. (NYSE:AGRO) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Adecoagro's shares before the 5th of November to receive the dividend, which will be paid on the 19th of November.
The company's next dividend payment will be US$0.1212899 per share, on the back of last year when the company paid a total of US$0.35 to shareholders. Looking at the last 12 months of distributions, Adecoagro has a trailing yield of approximately 3.6% on its current stock price of US$9.69. If you buy this business for its dividend, you should have an idea of whether Adecoagro's dividend is reliable and sustainable. So we need to investigate whether Adecoagro can afford its dividend, and if the dividend could grow.
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. Adecoagro paid out 150% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Adecoagro generated enough free cash flow to afford its dividend. Dividends consumed 67% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's good to see that while Adecoagro's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Check out our latest analysis for Adecoagro
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Adecoagro's earnings have been skyrocketing, up 150% per annum for the past five years.
We'd also point out that Adecoagro issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Adecoagro has delivered an average of 2.0% per year annual increase in its dividend, based on the past five years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Is Adecoagro worth buying for its dividend? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
So if you want to do more digging on Adecoagro, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 4 warning signs for Adecoagro (3 are a bit concerning!) that you ought to be aware of before buying the 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.