Don't Buy Adams Resources & Energy, Inc. (NYSEMKT:AE) For Its Next Dividend Without Doing These Checks

By
Simply Wall St
Published
February 27, 2021
NYSEAM:AE

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Adams Resources & Energy, Inc. (NYSEMKT:AE) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 4th of March, you won't be eligible to receive this dividend, when it is paid on the 19th of March.

Adams Resources & Energy's next dividend payment will be US$0.24 per share, on the back of last year when the company paid a total of US$0.96 to shareholders. Looking at the last 12 months of distributions, Adams Resources & Energy has a trailing yield of approximately 3.3% on its current stock price of $29.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Adams Resources & Energy

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Adams Resources & Energy reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable.

Click here to see how much of its profit Adams Resources & Energy paid out over the last 12 months.

historic-dividend
AMEX:AE Historic Dividend February 27th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Adams Resources & Energy was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Adams Resources & Energy has delivered 5.9% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Adams Resources & Energy is keeping back more of its profits to grow the business.

We update our analysis on Adams Resources & Energy every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Is Adams Resources & Energy an attractive dividend stock, or better left on the shelf? It's hard to get used to Adams Resources & Energy paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Adams Resources & Energy. Every company has risks, and we've spotted 1 warning sign for Adams Resources & Energy you should know about.

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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