Is It Smart To Buy Adecoagro S.A. (NYSE:AGRO) Before It Goes Ex-Dividend?
Adecoagro S.A. (NYSE:AGRO) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Thus, you can purchase Adecoagro's shares before the 8th of November in order to receive the dividend, which the company will pay on the 24th of November.
The company's upcoming dividend is US$0.16 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Based on the last year's worth of payments, Adecoagro stock has a trailing yield of around 2.9% on the current share price of $11. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Adecoagro
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. Adecoagro has a low and conservative payout ratio of just 22% of its income after tax. 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. Fortunately, it paid out only 28% of its free cash flow in the past year.
It's positive to see that Adecoagro'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Adecoagro has grown its earnings rapidly, up 51% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Adecoagro's dividend payments are effectively flat on where they were two years ago.
To Sum It Up
Is Adecoagro worth buying for its dividend? We love that Adecoagro is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Adecoagro looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Adecoagro is facing. To that end, you should learn about the 4 warning signs we've spotted with Adecoagro (including 1 which is potentially serious).
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
