It looks like Albertsons Companies, Inc. (NYSE:ACI) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 25th of January will not receive this dividend, which will be paid on the 10th of February.
Albertsons Companies's next dividend payment will be US$0.10 per share. 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 Albertsons Companies has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Albertsons Companies is paying out just 5.4% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 4.1% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Albertsons Companies's earnings are effectively flat over the past three years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Albertsons Companies is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
This is Albertsons Companies's first year of paying a dividend, so it doesn't have much of a history yet to compare to.
Has Albertsons Companies got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Albertsons Companies is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Albertsons Companies is halfway there. Overall we think this is an attractive combination and worthy of further research.
So while Albertsons Companies looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Albertsons Companies is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning...
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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