Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see A.G. BARR p.l.c. (LON:BAG) is about to trade ex-dividend in the next 4 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase A.G. BARR's shares on or after the 11th of May will not receive the dividend, which will be paid on the 9th of June.

The company's next dividend payment will be UK£0.11 per share. Last year, in total, the company distributed UK£0.13 to shareholders. Based on the last year's worth of payments, A.G. BARR stock has a trailing yield of around 2.5% on the current share price of £5.26. If you buy this business for its dividend, you should have an idea of whether A.G. BARR's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for A.G. BARR

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. A.G. BARR paid out a comfortable 43% of its profit last year. 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. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that A.G. BARR'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. historic-dividend

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that A.G. BARR's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, A.G. BARR has lifted its dividend by approximately 2.7% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid A.G. BARR? Earnings per share are down very slightly in recent times, and A.G. BARR paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you want to look further into A.G. BARR, it's worth knowing the risks this business faces. Case in point: We've spotted 1 warning sign for A.G. BARR you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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