Only Four Days Left To Cash In On ALLETE's (NYSE:ALE) Dividend
Readers hoping to buy ALLETE, Inc. (NYSE:ALE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase ALLETE's shares before the 14th of August in order to be eligible for the dividend, which will be paid on the 1st of September.
The company's upcoming dividend is US$0.68 a share, following on from the last 12 months, when the company distributed a total of US$2.71 per share to shareholders. Last year's total dividend payments show that ALLETE has a trailing yield of 4.7% on the current share price of $57.5. If you buy this business for its dividend, you should have an idea of whether ALLETE's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for ALLETE
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. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that ALLETE's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A payout ratio of 76% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ALLETE has delivered an average of 3.9% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
Should investors buy ALLETE for the upcoming dividend? It's unfortunate that earnings per share have not grown, and we'd note that ALLETE is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. To summarise, ALLETE looks okay on this analysis, although it doesn't appear a stand-out opportunity.
In light of that, while ALLETE has an appealing dividend, it's worth knowing the risks involved with this stock. For example - ALLETE has 1 warning sign we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
