Should Income Investors Look At AZZ Inc. (NYSE:AZZ) Before Its Ex-Dividend?

By
Simply Wall St
Published
July 14, 2021
NYSE:AZZ
Source: Shutterstock

AZZ Inc. (NYSE:AZZ) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 AZZ's shares on or after the 19th of July will not receive the dividend, which will be paid on the 3rd of August.

The company's upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$0.68 per share to shareholders. Looking at the last 12 months of distributions, AZZ has a trailing yield of approximately 1.3% on its current stock price of $53.13. If you buy this business for its dividend, you should have an idea of whether AZZ's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for AZZ

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. AZZ paid out a comfortable 31% of its profit last year. 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. Luckily it paid out just 22% of its free cash flow last year.

It's positive to see that AZZ'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.

historic-dividend
NYSE:AZZ Historic Dividend July 14th 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see AZZ's earnings per share have dropped 5.5% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, AZZ has lifted its dividend by approximately 3.1% a year on average.

Final Takeaway

Is AZZ worth buying for its dividend? AZZ has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, AZZ looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while AZZ has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for AZZ that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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