It looks like Avient Corporation (NYSE:AVNT) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 17th of September to receive the dividend, which will be paid on the 8th of October.
Avient's next dividend payment will be US$0.20 per share, and in the last 12 months, the company paid a total of US$0.81 per share. Based on the last year's worth of payments, Avient stock has a trailing yield of around 3.0% on the current share price of $26.75. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! 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. Its dividend payout ratio is 77% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. 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. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Avient'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Avient, with earnings per share up 4.2% on average over the last five years. A high payout ratio of 77% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Avient could be signalling that its future growth prospects are thin.
Avient 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Avient has lifted its dividend by approximately 18% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Has Avient got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Avient's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, it's hard to get excited about Avient from a dividend perspective.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 3 warning signs for Avient (1 shouldn't be ignored!) that deserve your attention before investing in the 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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