American Eagle Outfitters (NYSE:AEO) Is Paying Out A Dividend Of $0.125

American Eagle Outfitters, Inc.'s (NYSE:AEO) investors are due to receive a payment of $0.125 per share on 29th of October. The dividend yield will be 2.6% based on this payment which is still above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that American Eagle Outfitters' stock price has increased by 94% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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American Eagle Outfitters' Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by American Eagle Outfitters' earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 68.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Check out our latest analysis for American Eagle Outfitters

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The most recent annual payment of $0.50 is about the same as the annual payment 10 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

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. It's encouraging to see that American Eagle Outfitters has been growing its earnings per share at 21% a year over the past five years. American Eagle Outfitters is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

American Eagle Outfitters Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think American Eagle Outfitters might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for American Eagle Outfitters that investors should know about before committing capital to this stock. 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.