Ambev S.A. (BVMF:ABEV3) Will Pay A R$0.65 Dividend In Four Days

It looks like Ambev S.A. (BVMF:ABEV3) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Ambev's shares before the 20th of December in order to be eligible for the dividend, which will be paid on the 29th of December.

The company's next dividend payment will be R$0.65 per share, on the back of last year when the company paid a total of R$0.76 to shareholders. Last year's total dividend payments show that Ambev has a trailing yield of 5.0% on the current share price of R$15.13. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Ambev has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Ambev

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ambev paid out more than half (73%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 75% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Ambev's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A payout ratio of 73% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past nine years, Ambev has increased its dividend at approximately 7.9% a year on average.

Final Takeaway

Is Ambev an attractive dividend stock, or better left on the shelf? Earnings per share have barely grown, and although Ambev paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. Overall, it's hard to get excited 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. Every company has risks, and we've spotted 1 warning sign for Ambev you should know about.

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.