Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that ABM Industries Incorporated (NYSE:ABM) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 1st of April will not receive the dividend, which will be paid on the 4th of May.
ABM Industries's next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.74 per share. Looking at the last 12 months of distributions, ABM Industries has a trailing yield of approximately 3.4% on its current stock price of $22.05. If you buy this business for its dividend, you should have an idea of whether ABM Industries's dividend is reliable and sustainable. As a result, readers should always check whether ABM Industries has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately ABM Industries's payout ratio is modest, at just 34% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 23% of its free cash flow in the last year.
It's positive to see that ABM Industries'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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, ABM Industries's earnings per share have been growing at 12% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, ABM Industries has lifted its dividend by approximately 3.6% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Is ABM Industries worth buying for its dividend? We love that ABM Industries is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.
In light of that, while ABM Industries has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for ABM Industries that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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