Antero Midstream (NYSE:AM) Is Due To Pay A Dividend Of $0.225

Antero Midstream Corporation (NYSE:AM) has announced that it will pay a dividend of $0.225 per share on the 7th of August. This makes the dividend yield 6.1%, which will augment investor returns quite nicely.

View our latest analysis for Antero Midstream

Antero Midstream's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Antero Midstream's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 42.4%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 90% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Antero Midstream's Dividend Has Lacked Consistency

Antero Midstream has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of $0.186 in 2017 to the most recent total annual payment of $0.90. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Antero Midstream Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Antero Midstream has been growing its earnings per share at 23% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

Our Thoughts On Antero Midstream's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Antero Midstream has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Antero Midstream not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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