Should You Buy Ameriprise Financial, Inc. (NYSE:AMP) For Its Upcoming Dividend?

By
Simply Wall St
Published
November 01, 2020
NYSE:AMP

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ameriprise Financial, Inc. (NYSE:AMP) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 6th of November in order to be eligible for this dividend, which will be paid on the 20th of November.

Ameriprise Financial's next dividend payment will be US$1.04 per share. Last year, in total, the company distributed US$4.16 to shareholders. Based on the last year's worth of payments, Ameriprise Financial stock has a trailing yield of around 2.6% on the current share price of $160.83. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Ameriprise Financial can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Ameriprise Financial

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. Ameriprise Financial paid out a comfortable 28% of its profit last year.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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NYSE:AMP Historic Dividend November 1st 2020

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. Fortunately for readers, Ameriprise Financial's earnings per share have been growing at 11% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Ameriprise Financial has lifted its dividend by approximately 20% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Ameriprise Financial? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Ameriprise Financial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

On that note, you'll want to research what risks Ameriprise Financial is facing. For example, we've found 2 warning signs for Ameriprise Financial that we recommend you consider before investing in the business.

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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