Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AdvanSix Inc. (NYSE:ASIX) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase AdvanSix's shares before the 16th of May in order to be eligible for the dividend, which will be paid on the 31st of May.
The company's next dividend payment will be US$0.13 per share, on the back of last year when the company paid a total of US$0.50 to shareholders. Based on the last year's worth of payments, AdvanSix has a trailing yield of 1.1% on the current stock price of $45.25. If you buy this business for its dividend, you should have an idea of whether AdvanSix's dividend is reliable and sustainable. As a result, readers should always check whether AdvanSix 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. AdvanSix paid out just 6.0% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 4.8% of its cash flow last year.
It's positive to see that AdvanSix's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see AdvanSix's earnings have been skyrocketing, up 41% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, AdvanSix looks like a promising growth company.
Given that AdvanSix has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Is AdvanSix worth buying for its dividend? AdvanSix has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. AdvanSix looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while AdvanSix has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with AdvanSix and understanding them should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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.