Avon Rubber p.l.c. (LON:AVON)'s Could Be A Buy For Its Upcoming Dividend
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 Avon Rubber p.l.c. (LON:AVON) is about to go ex-dividend in just 3 days. Investors can purchase shares before the 8th of August in order to be eligible for this dividend, which will be paid on the 6th of September.
Avon Rubber's next dividend payment will be UK£0.069 per share, and in the last 12 months, the company paid a total of UK£0.16 per share. Based on the last year's worth of payments, Avon Rubber stock has a trailing yield of around 1.2% on the current share price of £13.12. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Avon Rubber
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Avon Rubber paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Avon Rubber generated enough free cash flow to afford its dividend. Fortunately, it paid out only 32% of its free cash flow in the past year.
It's positive to see that Avon Rubber'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Avon Rubber earnings per share are up 9.0% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Avon Rubber has delivered an average of 20% per year annual increase in its dividend, based on the past 9 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Has Avon Rubber got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Avon Rubber is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Avon Rubber is halfway there. Avon Rubber looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Avon Rubber? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
