It looks like American Campus Communities, Inc. (NYSE:ACC) is about to go ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 9th of August will not receive the dividend, which will be paid on the 23rd of August.
American Campus Communities's next dividend payment will be US$0.47 per share, on the back of last year when the company paid a total of US$1.88 to shareholders. Based on the last year's worth of payments, American Campus Communities stock has a trailing yield of around 4.1% on the current share price of $46. If you buy this business for its dividend, you should have an idea of whether American Campus Communities's dividend is reliable and sustainable. As a result, readers should always check whether American Campus Communities has been able to grow its dividends, or if the dividend might be cut.
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. American Campus Communities paid out more than half (73%) of its earnings last year, which is a regular payout ratio for most companies. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (72%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that American Campus Communities'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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see American Campus Communities earnings per share are up 7.7% per annum over the last five years. Decent historical earnings per share growth suggests American Campus Communities has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, American Campus Communities has lifted its dividend by approximately 3.4% a year on average. 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.
To Sum It Up
Is American Campus Communities an attractive dividend stock, or better left on the shelf? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Curious what other investors think of American Campus Communities? See what analysts 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 email@example.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.