AMP (ASX:AMP) Will Pay A Dividend Of A$0.02

AMP Limited (ASX:AMP) has announced that it will pay a dividend of A$0.02 per share on the 4th of April. This means that the annual payment will be 3.6% of the current stock price, which is in line with the average for the industry.

View our latest analysis for AMP

AMP's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, AMP was paying out 677% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 35% which is fairly sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was A$0.25, compared to the most recent full-year payment of A$0.04. This works out to a decline of approximately 84% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Come By

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. In the last five years, AMP's earnings per share has shrunk at approximately 6.4% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We're Not Big Fans Of AMP's Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for AMP (2 shouldn't be ignored!) that you should be aware of before investing. Is AMP not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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