Advance Auto Parts (NYSE:AAP) Has Announced A Dividend Of $0.25

Advance Auto Parts, Inc.'s (NYSE:AAP) investors are due to receive a payment of $0.25 per share on 25th of April. This means the annual payment is 2.7% of the current stock price, which is above the average for the industry.

See our latest analysis for Advance Auto Parts

Advance Auto Parts' Long-term Dividend Outlook appears Promising

If the payments aren't sustainable, a high yield for a few years won't matter that much. Even in the absence of profits, Advance Auto Parts is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 3.9%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $0.24 in 2015 to the most recent total annual payment of $1.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Advance Auto Parts has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 37% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

We're Not Big Fans Of Advance Auto Parts' Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Advance Auto Parts make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Advance Auto Parts that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.