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AdvanSix Inc. (NYSE:ASIX) will pay a dividend of $0.16 on the 24th of March. Based on this payment, the dividend yield will be 2.2%, which is fairly typical for the industry.
View our latest analysis for AdvanSix
AdvanSix's Payment Could Potentially Have Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, AdvanSix was paying a whopping 1,012% as a dividend, but this only made up 39% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
The next year is set to see EPS grow by 46.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.
AdvanSix Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of $0.50 in 2022 to the most recent total annual payment of $0.64. This works out to be a compound annual growth rate (CAGR) of approximately 8.6% a year over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.
AdvanSix May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 2.3% per year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
Our Thoughts On AdvanSix's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about AdvanSix's payments, as there could be some issues with sustaining them into the future. While AdvanSix is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for AdvanSix that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.