Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the past 10 years Amcor Limited (ASX:AMC) has returned an average of 4.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Amcor in more detail. View our latest analysis for Amcor

5 questions to ask before buying a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share risen in the past couple of years?

• Is is able to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

How does Amcor fare?

Amcor has a trailing twelve-month payout ratio of 83.35%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect AMC’s payout to fall to 68.32% of its earnings, which leads to a dividend yield of 4.29%. However, EPS should increase to $0.66, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again. Relative to peers, Amcor produces a yield of 2.95%, which is high for Packaging stocks but still below the low risk savings rate.

Next Steps:

Taking all the above into account, Amcor is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant aspects you should look at:

• 1. Future Outlook: What are well-informed industry analysts predicting for AMC’s future growth? Take a look at our free research report of analyst consensus for AMC’s outlook.

• 2. Valuation: What is AMC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AMC is currently mispriced by the market.

• 3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.