Do These 3 Checks Before Buying Aggreko Plc (LON:AGK) For Its Upcoming Dividend
It looks like Aggreko Plc (LON:AGK) is about to go ex-dividend in the next 4 days. You can purchase shares before the 3rd of September in order to receive the dividend, which the company will pay on the 1st of October.
Aggreko's next dividend payment will be UK£0.05 per share. Last year, in total, the company distributed UK£0.23 to shareholders. Calculating the last year's worth of payments shows that Aggreko has a trailing yield of 4.9% on the current share price of £4.772. 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.
See our latest analysis for Aggreko
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. Aggreko reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Aggreko didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 7.4% of its free cash flow as dividends last year, which is conservatively low.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Aggreko reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Aggreko has lifted its dividend by approximately 5.5% a year on average.
Get our latest analysis on Aggreko's balance sheet health here.
The Bottom Line
Should investors buy Aggreko for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Aggreko.
With that in mind though, if the poor dividend characteristics of Aggreko don't faze you, it's worth being mindful of the risks involved with this business. Be aware that Aggreko is showing 2 warning signs in our investment analysis, and 1 of those is significant...
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
