American Vanguard's (NYSE:AVD) Dividend Will Be $0.03

American Vanguard Corporation's (NYSE:AVD) investors are due to receive a payment of $0.03 per share on 12th of January. The dividend yield is 1.1% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for American Vanguard

American Vanguard's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, American Vanguard's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to rise by 106.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.14 in 2013, and the most recent fiscal year payment was $0.12. Doing the maths, this is a decline of about 1.5% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though American Vanguard's EPS has declined at around 29% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about American Vanguard's payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Just as an example, we've come across 2 warning signs for American Vanguard you should be aware of, and 1 of them is significant. Is American Vanguard not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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