Is It Worth Considering Ambev S.A. (BVMF:ABEV3) For Its Upcoming Dividend?

Readers hoping to buy Ambev S.A. (BVMF:ABEV3) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Ambev's shares before the 23rd of December to receive the dividend, which will be paid on the 30th of December.

The company's next dividend payment will be R$0.6309 per share, on the back of last year when the company paid a total of R$0.73 to shareholders. Based on the last year's worth of payments, Ambev has a trailing yield of 5.7% on the current stock price of R$12.78. 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.

See our latest analysis for Ambev

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 82% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Ambev generated enough free cash flow to afford its dividend. Over the last year it paid out 57% of its free cash flow as dividends, within the usual range for most companies.

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 with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Ambev earnings per share are up 4.9% per annum over the last five years. A high payout ratio of 82% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Ambev could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Ambev has lifted its dividend by approximately 6.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Ambev for the upcoming dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ambev today.

So if you want to do more digging on Ambev, you'll find it worthwhile knowing the risks that this stock faces. For example - Ambev has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.