Should You Buy AptarGroup, Inc. (NYSE:ATR) For Its Upcoming Dividend?
AptarGroup, Inc. (NYSE:ATR) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase AptarGroup's shares before the 26th of October to receive the dividend, which will be paid on the 17th of November.
The company's upcoming dividend is US$0.38 a share, following on from the last 12 months, when the company distributed a total of US$1.52 per share to shareholders. Last year's total dividend payments show that AptarGroup has a trailing yield of 1.2% on the current share price of $128.16. 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! As a result, readers should always check whether AptarGroup has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for AptarGroup
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see AptarGroup paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether AptarGroup generated enough free cash flow to afford its dividend. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 AptarGroup earnings per share are up 4.0% per annum over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AptarGroup has delivered 7.8% dividend growth per year on average over the past 10 years. 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.
Final Takeaway
Has AptarGroup got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and AptarGroup is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 AptarGroup is halfway there. Overall we think this is an attractive combination and worthy of further research.
In light of that, while AptarGroup has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for AptarGroup you should be aware of.
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.
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.
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