It looks like Ashtead Group plc (LON:AHT) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 15th of August will not receive the dividend, which will be paid on the 13th of September.
Ashtead Group's next dividend payment will be UK£0.34 per share, on the back of last year when the company paid a total of UK£0.40 to shareholders. Last year's total dividend payments show that Ashtead Group has a trailing yield of 1.8% on the current share price of £22.17. If you buy this business for its dividend, you should have an idea of whether Ashtead Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ashtead Group has a low and conservative payout ratio of just 24% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.
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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Ashtead Group's earnings have been skyrocketing, up 29% per annum for the past five years. Ashtead Group is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Ashtead Group has lifted its dividend by approximately 32% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Has Ashtead Group got what it takes to maintain its dividend payments? We love that Ashtead Group 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. Ashtead Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Ashtead Group? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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