U.S. Markets closed
  • S&P 500

    3,638.35
    +8.70 (+0.24%)
     
  • Dow 30

    29,910.37
    +37.90 (+0.13%)
     
  • Nasdaq

    12,205.85
    +111.44 (+0.92%)
     
  • Russell 2000

    1,855.27
    +10.25 (+0.56%)
     
  • Crude Oil

    45.53
    -0.18 (-0.39%)
     
  • Gold

    1,788.10
    -23.10 (-1.28%)
     
  • Silver

    22.64
    -0.81 (-3.44%)
     
  • EUR/USD

    1.1970
    +0.0057 (+0.4788%)
     
  • 10-Yr Bond

    0.8420
    -0.0360 (-4.10%)
     
  • Vix

    20.84
    -0.41 (-1.93%)
     
  • GBP/USD

    1.3314
    -0.0042 (-0.3169%)
     
  • USD/JPY

    104.0850
    -0.1650 (-0.1583%)
     
  • BTC-USD

    17,742.85
    +557.51 (+3.24%)
     
  • CMC Crypto 200

    333.27
    -4.23 (-1.25%)
     
  • FTSE 100

    6,367.58
    +4.65 (+0.07%)
     
  • Nikkei 225

    26,644.71
    +107.40 (+0.40%)
     

Don't Buy AmerisourceBergen Corporation (NYSE:ABC) For Its Next Dividend Without Doing These Checks

Simply Wall St
·3 min read

AmerisourceBergen Corporation (NYSE:ABC) stock is about to trade ex-dividend in four days. You can purchase shares before the 13th of November in order to receive the dividend, which the company will pay on the 30th of November.

AmerisourceBergen's next dividend payment will be US$0.44 per share. Last year, in total, the company distributed US$1.76 to shareholders. Based on the last year's worth of payments, AmerisourceBergen stock has a trailing yield of around 1.7% on the current share price of $103.95. If you buy this business for its dividend, you should have an idea of whether AmerisourceBergen's dividend is reliable and sustainable. As a result, readers should always check whether AmerisourceBergen has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for AmerisourceBergen

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. AmerisourceBergen's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If AmerisourceBergen didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 19% of its free cash flow in the last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. AmerisourceBergen reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AmerisourceBergen has delivered an average of 19% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Remember, you can always get a snapshot of AmerisourceBergen's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is AmerisourceBergen an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of AmerisourceBergen don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with AmerisourceBergen and understanding them should be part of your investment process.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.