Avnet, Inc. (NASDAQ:AVT) Is About To Go Ex-Dividend, And It Pays A 2.0% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Avnet, Inc. (NASDAQ:AVT) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Meaning, you will need to purchase Avnet's shares before the 8th of June to receive the dividend, which will be paid on the 23rd of June.

The company's upcoming dividend is US$0.22 a share, following on from the last 12 months, when the company distributed a total of US$0.84 per share to shareholders. Calculating the last year's worth of payments shows that Avnet has a trailing yield of 2.0% on the current share price of $44.19. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Avnet

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. Avnet paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Avnet generated enough free cash flow to afford its dividend. Luckily it paid out just 18% of its free cash flow last year.

It's positive to see that Avnet'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Avnet's earnings per share have dropped 14% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, eight years ago, Avnet has lifted its dividend by approximately 4.9% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

Should investors buy Avnet for the upcoming dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. In summary, it's hard to get excited about Avnet from a dividend perspective.

If you want to look further into Avnet, it's worth knowing the risks this business faces. Case in point: We've spotted 3 warning signs for Avnet you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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