U.S. Markets open in 2 hrs 16 mins

Is It Worth Considering AMCON Distributing Company (NYSEMKT:DIT) For Its Upcoming Dividend?

Simply Wall St

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that AMCON Distributing Company (NYSEMKT:DIT) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 7th of February to receive the dividend, which will be paid on the 4th of March.

AMCON Distributing's next dividend payment will be US$0.18 per share, on the back of last year when the company paid a total of US$1.00 to shareholders. Looking at the last 12 months of distributions, AMCON Distributing has a trailing yield of approximately 1.3% on its current stock price of $77.975. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for AMCON Distributing

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. AMCON Distributing has a low and conservative payout ratio of just 17% of its income after tax. A useful secondary check can be to evaluate whether AMCON Distributing generated enough free cash flow to afford its dividend. AMCON Distributing paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see how much of its profit AMCON Distributing paid out over the last 12 months.

AMEX:DIT Historical Dividend Yield, February 2nd 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by AMCON Distributing's 12% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, AMCON Distributing has increased its dividend at approximately 9.6% a year on average.

Final Takeaway

Should investors buy AMCON Distributing for the upcoming dividend? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though AMCON Distributing is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not that we think AMCON Distributing is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Keen to explore more data on AMCON Distributing's financial performance? Check out our visualisation of its historical revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.