It looks like Atlas Corp. (NYSE:ATCO) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 17th of April, you won't be eligible to receive this dividend, when it is paid on the 30th of April.
Atlas's next dividend payment will be US$0.13 per share, on the back of last year when the company paid a total of US$0.50 to shareholders. Looking at the last 12 months of distributions, Atlas has a trailing yield of approximately 7.1% on its current stock price of $7.09. 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.
View our latest analysis for Atlas
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. That's why it's good to see Atlas paying out a modest 29% of its earnings. 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 39% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Atlas'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Atlas's earnings per share have risen 17% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Atlas also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Atlas has lifted its dividend by approximately 2.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Atlas is keeping back more of its profits to grow the business.
To Sum It Up
Has Atlas got what it takes to maintain its dividend payments? We love that Atlas 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. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Atlas has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Atlas is showing 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
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.
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April 12, 2020 at 07:05PM
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Why You Might Be Interested In Atlas Corp. (NYSE:ATCO) For Its Upcoming Dividend - Yahoo Finance
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