Should Income Investors Look At Archer-Daniels-Midland Company (NYSE:ADM) Before Its Ex-Dividend?

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Archer-Daniels-Midland Company (NYSE:ADM) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Archer-Daniels-Midland's shares on or after the 20th of August, you won't be eligible to receive the dividend, when it is paid on the 10th of September.

The company's next dividend payment will be US$0.51 per share. Last year, in total, the company distributed US$2.04 to shareholders. Looking at the last 12 months of distributions, Archer-Daniels-Midland has a trailing yield of approximately 3.4% on its current stock price of US$59.32. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 89% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Archer-Daniels-Midland generated enough free cash flow to afford its dividend. The good news is it paid out just 24% 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.

View our latest analysis for Archer-Daniels-Midland

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Archer-Daniels-Midland's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Archer-Daniels-Midland has delivered 7.8% dividend growth per year on average over the past 10 years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Archer-Daniels-Midland? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Archer-Daniels-Midland doesn't stand out from a dividend perspective. In summary, it's hard to get excited about Archer-Daniels-Midland from a dividend perspective.

However if you're still interested in Archer-Daniels-Midland as a potential investment, you should definitely consider some of the risks involved with Archer-Daniels-Midland. To help with this, we've discovered 2 warning signs for Archer-Daniels-Midland that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.