Should Income Investors Look At AptarGroup, Inc. (NYSE:ATR) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AptarGroup, Inc. (NYSE:ATR) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase AptarGroup's shares before the 25th of October to receive the dividend, which will be paid on the 16th of November.

The company's upcoming dividend is US$0.38 a share, following on from the last 12 months, when the company distributed a total of US$1.52 per share to shareholders. Based on the last year's worth of payments, AptarGroup has a trailing yield of 1.5% on the current stock price of $98.21. If you buy this business for its dividend, you should have an idea of whether AptarGroup's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Our analysis indicates that ATR is potentially undervalued!

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see AptarGroup paying out a modest 43% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 216% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how AptarGroup intends to continue funding this dividend, or if it could be forced to cut the payment.

While AptarGroup's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to AptarGroup's ability to maintain its dividend.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that AptarGroup's earnings per share have remained 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. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, AptarGroup has lifted its dividend by approximately 5.6% a year on average.

Final Takeaway

Should investors buy AptarGroup for the upcoming dividend? Earnings per share have barely grown in this time, and although AptarGroup is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. Overall, it's hard to get excited about AptarGroup from a dividend perspective.

If you're not too concerned about AptarGroup's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example - AptarGroup has 2 warning signs we think you should be aware of.

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.