Yahoo Finance Here's Why We're Wary Of Buying Adams Resources & Energy's (NYSEMKT:AE) For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Adams Resources & Energy, Inc. (NYSEMKT:AE) is about to go ex-dividend in just four days. This means that investors who purchase shares on or after the 3rd of December will not receive the dividend, which will be paid on the 18th of December.
Adams Resources & Energy's next dividend payment will be US$0.24 per share. Last year, in total, the company distributed US$0.96 to shareholders. Based on the last year's worth of payments, Adams Resources & Energy stock has a trailing yield of around 3.6% on the current share price of $26.74. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Adams Resources & Energy has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Adams Resources & Energy
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. Adams Resources & Energy's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Adams Resources & Energy 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.
Click here to see how much of its profit Adams Resources & Energy paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Adams Resources & Energy was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Adams Resources & Energy has lifted its dividend by approximately 5.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Adams Resources & Energy is keeping back more of its profits to grow the business.
Get our latest analysis on Adams Resources & Energy's balance sheet health here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Adams Resources & Energy? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. Bottom line: Adams Resources & Energy has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of Adams Resources & Energy don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with Adams Resources & Energy and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top 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.
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