Ambev S.A. (BVMF:ABEV3) Pays A R$0.1283 Dividend In Just Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ambev S.A. (BVMF:ABEV3) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase Ambev's shares before the 8th of August in order to receive the dividend, which the company will pay on the 6th of October.

The company's next dividend payment will be R$0.1283 per share, on the back of last year when the company paid a total of R$0.67 to shareholders. Calculating the last year's worth of payments shows that Ambev has a trailing yield of 5.4% on the current share price of R$12.29. If you buy this business for its dividend, you should have an idea of whether Ambev's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Ambev paid out more than half (71%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Ambev generated enough free cash flow to afford its dividend. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Ambev'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.

See our latest analysis for Ambev

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Ambev earnings per share are up 4.8% per annum over the last five years. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Ambev dividends are largely the same as they were 10 years ago.

The Bottom Line

Is Ambev worth buying for its dividend? Earnings per share have been growing modestly and Ambev paid out a bit over half of its earnings and free cash flow last year. All things considered, we are not particularly enthused about Ambev from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Ambev, you should know about the other risks facing this business. To help with this, we've discovered 1 warning sign for Ambev that you should be aware of before investing in their shares.

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.