Amcor's (ASX:AMC) Dividend Will Be Increased To AU$0.17
The board of Amcor plc (ASX:AMC) has announced that it will be increasing its dividend on the 14th of June to AU$0.17. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for Amcor
Amcor's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Amcor's was paying out quite a large proportion of earnings and 77% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
Earnings per share is forecast to rise by 18.2% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 90%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was US$0.34, compared to the most recent full-year payment of US$0.48. This means that it has been growing its distributions at 3.5% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Amcor's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see Amcor has been growing its earnings per share at 12% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On Amcor's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means Amcor has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Amcor is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Amcor has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Is Amcor not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
