The board of Astec Industries, Inc. (NASDAQ:ASTE) has announced that it will pay a dividend on the 29th of August, with investors receiving $0.12 per share. Including this payment, the dividend yield on the stock will be 1.1%, which is a modest boost for shareholders' returns.
Astec Industries Is Paying Out More Than It Is Earning
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Astec Industries was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.
Over the next year, EPS is forecast to expand by 104.5%. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.
Astec Industries Doesn't Have A Long Payment History
It is great to see that Astec Industries has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of $0.40 in 2013 to the most recent total annual payment of $0.48. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. Astec Industries hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Astec Industries' earnings per share has shrunk at 52% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Astec Industries' payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Astec Industries that investors should know about before committing capital to this stock. Is Astec Industries 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.
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