ACCO Brands Corporation's (NYSE:ACCO) investors are due to receive a payment of $0.075 per share on 12th of September. Based on this payment, the dividend yield on the company's stock will be 5.6%, which is an attractive boost to shareholder returns.
ACCO Brands Is Paying Out More Than It Is Earning
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even though ACCO Brands isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.
Over the next year, EPS is forecast to expand by 121.9%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.
ACCO Brands Doesn't Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of $0.24 in 2018 to the most recent total annual payment of $0.30. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Over the past five years, it looks as though ACCO Brands' EPS has declined at around 27% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in 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
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, ACCO Brands has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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