Be Sure To Check Out ABM Industries Incorporated (NYSE:ABM) Before It Goes Ex-Dividend

ABM Industries Incorporated +1.19%

ABM Industries Incorporated

ABM

44.32

+1.19%

ABM Industries Incorporated (NYSE:ABM) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase ABM Industries' shares on or after the 3rd of January will not receive the dividend, which will be paid on the 5th of February.

The company's next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.90 to shareholders. Based on the last year's worth of payments, ABM Industries stock has a trailing yield of around 2.0% on the current share price of $45.25. 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 ABM Industries can afford its dividend, and if the dividend could grow.

View our latest analysis for ABM Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. ABM Industries has a low and conservative payout ratio of just 23% of its income after tax. 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 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that ABM Industries'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
NYSE:ABM Historic Dividend December 29th 2023

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see ABM Industries has grown its earnings rapidly, up 22% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ABM Industries has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because ABM Industries is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid ABM Industries? ABM Industries has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while ABM Industries has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for ABM Industries (of which 2 are concerning!) you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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