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 AVEVA Group plc (LON:AVV) is about to go ex-dividend in just four days. Investors can purchase shares before the 9th of July in order to be eligible for this dividend, which will be paid on the 11th of August.
AVEVA Group's upcoming dividend is UK£0.29 a share, following on from the last 12 months, when the company distributed a total of UK£0.45 per share to shareholders. Calculating the last year's worth of payments shows that AVEVA Group has a trailing yield of 1.1% on the current share price of £41.01. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether AVEVA Group can afford its dividend, and if the dividend could grow.
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. Last year AVEVA Group paid out 103% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. It paid out more than half (70%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while AVEVA Group's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 AVEVA Group's earnings have been skyrocketing, up 106% per annum for the past three years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, AVEVA Group has increased its dividend at approximately 28% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is AVEVA Group worth buying for its dividend? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. Overall, it's hard to get excited about AVEVA Group from a dividend perspective.
With that being said, if dividends aren't your biggest concern with AVEVA Group, you should know about the other risks facing this business. To help with this, we've discovered 1 warning sign for AVEVA Group that you should be aware of before investing in their shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
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