Does American Airlines Group Inc. (NASDAQ:AAL) Have A Place In Your Dividend Stock Portfolio?

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, American Airlines Group Inc. (NASDAQ:AAL) has been paying a dividend to shareholders. Today it yields 1.3%. Let's dig deeper into whether American Airlines Group should have a place in your portfolio.

Check out our latest analysis for American Airlines Group

5 questions to ask before buying a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is its annual yield among the top 25% of dividend-paying companies?
• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
• Has the amount of dividend per share grown over the past?
• Is its earnings sufficient to payout dividend at the current rate?
• Will it be able to continue to payout at the current rate in the future?

How does American Airlines Group fare?

American Airlines Group has a trailing twelve-month payout ratio of 13%, which means that the dividend is covered by earnings. However, going forward, analysts expect AAL's payout to fall to 6.0% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.4%. However, EPS should increase to $6.11, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. The reality is that it is too early to consider American Airlines Group as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, American Airlines Group has a yield of 1.3%, which is on the low-side for Airlines stocks.

Next Steps:

After digging a little deeper into American Airlines Group's yield, it's easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. There are three essential aspects you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for AAL’s future growth? Take a look at our free research report of analyst consensus for AAL’s outlook.
2. Valuation: What is AAL worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AAL is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.