ABM Industries Incorporated (NYSE:ABM) Looks Interesting, And It's About To Pay A 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 ABM Industries Incorporated (NYSE:ABM) is about to go ex-dividend in just 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase ABM Industries' shares on or after the 6th of October will not receive the dividend, which will be paid on the 1st of November.
The company's upcoming dividend is US$0.19 a share, following on from the last 12 months, when the company distributed a total of US$0.76 per share to shareholders. Last year's total dividend payments show that ABM Industries has a trailing yield of 1.7% on the current share price of $45.01. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether ABM Industries can afford its dividend, and if the dividend could grow.
Check out our latest analysis for ABM Industries
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately ABM Industries's payout ratio is modest, at just 35% of profit. 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. Luckily it paid out just 12% of its free cash flow last year.
It's positive to see that ABM Industries'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, ABM Industries's earnings per share have been growing at 18% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. ABM Industries has delivered an average of 3.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because ABM Industries is keeping back more of its profits to grow the business.
To Sum It Up
Has ABM Industries got what it takes to maintain its dividend payments? We love that ABM Industries is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks ABM Industries is facing. Our analysis shows 2 warning signs for ABM Industries and you should be aware of them before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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