Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ameriprise Financial, Inc. (NYSE:AMP) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 7th of August in order to be eligible for this dividend, which will be paid on the 21st of August.
Ameriprise Financial's next dividend payment will be US$1.04 per share, and in the last 12 months, the company paid a total of US$4.16 per share. Based on the last year's worth of payments, Ameriprise Financial stock has a trailing yield of around 2.7% on the current share price of $153.63. If you buy this business for its dividend, you should have an idea of whether Ameriprise Financial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ameriprise Financial paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Ameriprise Financial's earnings per share have risen 18% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Ameriprise Financial has increased its dividend at approximately 20% 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
Has Ameriprise Financial got what it takes to maintain its dividend payments? Companies like Ameriprise Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Ameriprise Financial appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
So while Ameriprise Financial looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 4 warning signs with Ameriprise Financial (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.
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.
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. 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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