Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see American Tower Corporation (REIT) (NYSE:AMT) is about to trade ex-dividend in the next 2 days. Investors can purchase shares before the 26th of September in order to be eligible for this dividend, which will be paid on the 17th of October.
American Tower Corporation (REIT)'s next dividend payment will be US$0.9 per share. Last year, in total, the company distributed US$3.7 to shareholders. Looking at the last 12 months of distributions, American Tower Corporation (REIT) has a trailing yield of approximately 1.7% on its current stock price of $225.56. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether American Tower Corporation (REIT) 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. Fortunately American Tower Corporation (REIT)'s payout ratio is modest, at just 44% of profit. While American Tower Corporation (REIT) seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that American Tower Corporation (REIT)'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see American Tower Corporation (REIT)'s earnings per share have risen 19% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. 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. Since the start of our data, eight years ago, American Tower Corporation (REIT) has lifted its dividend by approximately 21% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is American Tower Corporation (REIT) worth buying for its dividend? American Tower Corporation (REIT) has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
Ever wonder what the future holds for American Tower Corporation (REIT)? See what the 16 analysts we track 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 firstname.lastname@example.org. 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.