Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that AMCON Distributing Company (NYSEMKT:DIT) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 30th of July in order to be eligible for this dividend, which will be paid on the 24th of August.
AMCON Distributing’s next dividend payment will be US$0.18 per share, on the back of last year when the company paid a total of US$1.00 to shareholders. Looking at the last 12 months of distributions, AMCON Distributing has a trailing yield of approximately 1.5% on its current stock price of $68.18. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether AMCON Distributing can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. AMCON Distributing paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether AMCON Distributing generated enough free cash flow to afford its dividend. AMCON Distributing paid a dividend despite reporting negative free cash flow last year. That’s typically a bad combination and – if this were more than a one-off – not sustainable.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we’re concerned to see AMCON Distributing’s earnings per share have dropped 11% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. AMCON Distributing has delivered an average of 3.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.
Has AMCON Distributing got what it takes to maintain its dividend payments? It’s disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though AMCON Distributing is paying out less than half its income as dividends. However, it’s also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of AMCON Distributing don’t faze you, it’s worth being mindful of the risks involved with this business. For instance, we’ve identified 5 warning signs for AMCON Distributing (2 shouldn’t be ignored) you should be aware of.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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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