AMP Limited (ASX:AMP) Will Pay A AU$0.02 Dividend In Four Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AMP Limited (ASX:AMP) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase AMP's shares on or after the 21st of August will not receive the dividend, which will be paid on the 27th of September.

The company's next dividend payment will be AU$0.02 per share, on the back of last year when the company paid a total of AU$0.04 to shareholders. Based on the last year's worth of payments, AMP stock has a trailing yield of around 3.1% on the current share price of AU$1.31. 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 AMP can afford its dividend, and if the dividend could grow.

View our latest analysis for AMP

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. AMP paid out 156% 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.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see AMP has grown its earnings rapidly, up 23% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AMP's dividend payments per share have declined at 16% per year on average over the past 10 years, which is uninspiring. AMP is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is AMP worth buying for its dividend? We're not enthused to see AMP's dividend was not well covered by earnings over the last year, although it is great to see earnings growing. We're unconvinced on the company's merits, and think there might be better opportunities out there.

However if you're still interested in AMP as a potential investment, you should definitely consider some of the risks involved with AMP. To that end, you should learn about the 3 warning signs we've spotted with AMP (including 1 which shouldn't be ignored).

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.