Amotiv Limited (ASX:AOV) Pays A AU$0.22 Dividend In Just Three Days

Amotiv Limited (ASX:AOV) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day 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 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 Amotiv's shares before the 23rd of August to receive the dividend, which will be paid on the 12th of September.

The company's next dividend payment will be AU$0.22 per share, on the back of last year when the company paid a total of AU$0.40 to shareholders. Based on the last year's worth of payments, Amotiv stock has a trailing yield of around 3.8% on the current share price of AU$10.74. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Amotiv

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. Amotiv is paying out an acceptable 57% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Amotiv generated enough free cash flow to afford its dividend. Fortunately, it paid out only 38% of its free cash flow in the past year.

It's positive to see that Amotiv'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.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Amotiv's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Amotiv has delivered an average of 1.2% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is Amotiv worth buying for its dividend? Earnings per share have been flat and Amotiv's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Amotiv's dividend merits.

In light of that, while Amotiv has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Amotiv you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.