It looks like AZZ Inc. (NYSE: AZZ) is set to be ex-dividend within the next 3 days. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you will not appear on the books of the company on the date of registration. Therefore, if you buy AZZ shares on or after October 18, you will not be able to receive the dividend when it is paid on November 2.
The company’s next dividend payment will be US $ 0.17 per share, and over the past 12 months the company has paid a total of US $ 0.68 per share. Last year’s total dividend payouts show that AZZ has a rolling 1.2% return on the current share price of $ 55.98. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. Accordingly, readers should always check whether AZZ was able to increase its dividends or if the dividend could be reduced.
Check out our latest analysis for AZZ
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. AZZ only paid out 22% of its profits last year, which in our opinion is moderately low and leaves a lot of room for unforeseen circumstances. Yet cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. Fortunately, his dividend payments only took 26% of the free cash flow he generated, which is a comfortable payout ratio.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies that don’t increase their profits can still be valuable, but it’s even more important to assess the sustainability of the dividend if it looks like the business will be struggling to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. This explains why we are not too excited about AZZ’s stable revenue over the past five years. We would take that on a drop in earnings any day, but in the long run, the best dividend-paying stocks increase all their earnings per share. Recent growth has not been impressive. However, companies that see their growth slowing can often choose to pay a higher percentage of their profits to shareholders, which could see the dividend continue to rise.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began 10 years ago, AZZ has increased its dividend by around 3.1% per year on average.
Does AZZ have what it takes to maintain its dividend payments? Earnings per share have remained stable over this period, but we’re intrigued to see that AZZ pays less than half of its earnings and cash flow as dividends. This is interesting for several reasons, as it suggests that management may be reinvesting heavily in the company, but it also helps to increase the dividend over time. In general, we like to see both low payout ratios and strong earnings per share growth, but AZZ is halfway there. There is a lot to like about AZZ, and we would prioritize taking a closer look.
Curious about what other investors think of AZZ? Find out what analysts are forecasting, with this visualization of its historical and future estimated earnings and cash flow.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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