Don’t race to buy Ardagh Group SA (NYSE: ARD) just because it’s going ex-dividend
Ardagh Group SA (NYSE: ARD) is about to be traded ex-dividend in 4 days. The ex-dividend date is generally set at one working day before the registration date which is the deadline by which you must be present in the books of the company as a shareholder to receive the dividend. The ex-dividend date is an important date to know, as any purchase of shares made on or after this date may mean a late settlement that does not appear on the record date. Thus, you can buy the shares of the Ardagh Group before June 1 in order to receive the dividend, which the company will pay on June 16.
The company’s next dividend payment will be $ 0.15 per share, following last year when the company paid a total of $ 0.60 to shareholders. Based on the value of last year’s payouts, Ardagh Group has a trailing yield of 2.4% on the current share price of $ 24.67. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden goose! Accordingly, readers should always check whether Ardagh Group has been able to increase its dividends, or if the dividend could be reduced.
Check out our latest review for Ardagh Group
Dividends are generally paid out of company profits. If a company pays more in dividends than it earned in profits, then the dividend could be unsustainable. The Ardagh group paid a dividend last year when it was unprofitable. This may be a one-time event, but it is not a long-term sustainable situation. Given the lack of profitability, we also need to check whether the company has generated enough cash to cover the dividend payment. If the Ardagh group did not generate enough cash to pay the dividend, then it had to pay either with cash in the bank or by borrowing money, which is not sustainable in the long run. It distributed 50% of its free cash flow in the form of dividends, a comfortable level of distribution for most companies.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
When profits decline, dividend companies become much more difficult to analyze and hold safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to sell heavily at the same time. The Ardagh Group was unprofitable last year, and unfortunately the general trend suggests that its profits have declined over the past five years, which makes us question whether the dividend is sustainable.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. The Ardagh Group has experienced dividend growth of 1.7% per year on average over the past four years.
Get our latest analysis on the health of the Ardagh Group balance sheet here.
The bottom line
From a dividend perspective, should investors buy or avoid Ardagh Group? It’s hard to get used to Ardagh Group paying a dividend despite a loss in the past year. At least, however, the dividend was covered by free cash flow. This is not an attractive combination from a dividend standpoint, and we are inclined to pass on this one for the time being.
That being said, if you still view Ardagh Group as an investment, it will help you to know the risks that this stock faces. To help you, we have discovered 2 warning signs for Ardagh Group (1 is a bit rude!) Which you should be aware of before buying the shares.
However, we wouldn’t recommend just buying the first dividend-paying stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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