Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 5 years, Ambev SA. (NYSE:ABEV) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at Ambev in more detail. Check out our latest analysis for Ambev
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does Ambev fare?
The current trailing twelve-month payout ratio for ABEV is 110.91%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a lower payout ratio of 90.71%, leading to a dividend yield of 4.31%. However, EPS should increase to R$0.87, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Ambev as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Ambev produces a yield of 2.52%, which is on the low-side for Beverage stocks.
After digging a little deeper into Ambev’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for ABEV’s future growth? Take a look at our free research report of analyst consensus for ABEV’s outlook.
- Valuation: What is ABEV worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ABEV is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.