Yahoo Finance Should You Buy American Eagle Outfitters, Inc. (NYSE:AEO) 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 American Eagle Outfitters, Inc. (NYSE:AEO) is about to go ex-dividend in just four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase American Eagle Outfitters' shares before the 9th of December in order to be eligible for the dividend, which will be paid on the 29th of December.
The company's upcoming dividend is US$0.18 a share, following on from the last 12 months, when the company distributed a total of US$0.72 per share to shareholders. Based on the last year's worth of payments, American Eagle Outfitters has a trailing yield of 2.7% on the current stock price of $26.32. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for American Eagle Outfitters
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. American Eagle Outfitters has a low and conservative payout ratio of just 22% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see American Eagle Outfitters's earnings per share have risen 15% per annum over the last five years. American Eagle Outfitters is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. American Eagle Outfitters has delivered 5.0% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because American Eagle Outfitters is keeping back more of its profits to grow the business.
To Sum It Up
Is American Eagle Outfitters an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, American Eagle Outfitters paid out less than half its earnings and a bit over half its free cash flow. American Eagle Outfitters looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for American Eagle Outfitters (1 is a bit unpleasant!) that deserve your attention before investing in the shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.
