Antero Midstream Corporation (NYSE:AM) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Antero Midstream's shares on or after the 28th of October will not receive the dividend, which will be paid on the 11th of November.
The company's next dividend payment will be US$0.225 per share, and in the last 12 months, the company paid a total of US$0.90 per share. Based on the last year's worth of payments, Antero Midstream stock has a trailing yield of around 4.3% on the current share price of US$20.85. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Antero Midstream paid out 107% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Antero Midstream's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
See our latest analysis for Antero Midstream
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Antero Midstream earnings per share are up 6.6% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Antero Midstream has lifted its dividend by approximately 19% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Has Antero Midstream got what it takes to maintain its dividend payments? While earnings per share have been growing slowly, Antero Midstream is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Antero Midstream.
With that being said, if you're still considering Antero Midstream as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Antero Midstream has 2 warning signs we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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