Should you buy Albertsons Companies, Inc. (NYSE: ACI) for its upcoming dividend?

Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Albertsons Companies, Inc. (NYSE: ACI) is set to go ex-dividend in just 4 days. The ex-dividend date is usually one business day before the record date which is the latest date by which you must be present on the books of the company as a shareholder in order to receive the dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. This means you will need to buy shares of Albertsons Companies by July 25 to receive the dividend, which will be paid on August 10.

The company’s next dividend is $0.12 per share, following the past 12 months, when the company distributed a total of $0.48 per share to shareholders. Last year’s total dividend payouts show Albertsons Companies has a 1.8% yield on the current share price of $26.5. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. We need to see if the dividend is covered by earnings and if it increases.

Check out our latest analysis for Albertsons Companies

If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Albertsons Companies only paid out 16% of its profits last year, which we believe is relatively low and leaves plenty of room for unforeseen circumstances. A useful secondary check may be to assess whether the Albertsons companies have generated enough free cash flow to pay their dividend. The good thing is that dividends were well covered by free cash flow, with the company paying out 17% of its free cash flow last year.

It is positive to see the Albertsons Companies dividend being covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests greater safety margin before the dividend is reduced.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: Historic ACI Dividend July 20, 2022

Have earnings and dividends increased?

Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. It is encouraging to see that Albertsons Companies has grown its revenues rapidly, growing 120% annually over the past five years. Albertsons Companies’ earnings per share sprinted like the Road Runner on a day of athletics; barely stopping even for a cheeky “beep-beep”. We also like that he reinvests most of his profits back into his business.

Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Albertsons Companies has recorded dividend growth of 9.5% per year on average over the past two years. It’s encouraging to see the company increasing its dividends as earnings rise, suggesting at least some corporate interest in rewarding shareholders.

Last takeaway

Are Albertsons Companies Worth Buying For Its Dividend? We like that the Albertsons Companies are increasing their earnings per share while simultaneously paying out a small percentage of their earnings and cash flow. These characteristics suggest that the company is reinvesting in the growth of its business, while the conservative payout ratio also implies a reduced risk of dividend reduction in the future. Albertsons Companies looks solid in this overall analysis, and we would definitely consider looking into it further.

With this in mind, an essential part of thorough stock research is to be aware of all the risks stocks currently face. To help you, we found 4 warning signs for Albertsons businesses which you should be aware of before investing in their stocks.

A common investment mistake is to buy the first good stock you see. Here you can find a complete list of high yielding dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

About Warren Dockery

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