American Eagle Outfitters, Inc. (NYSE:AEO) will pay a dividend of US$0.18 on the 22nd of July. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.
View our latest analysis for American Eagle Outfitters
American Eagle Outfitters' Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. American Eagle Outfitters is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to fall by 29.8%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 48%, which is comfortable for the company to continue in the future.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from US$0.44 in 2012 to the most recent annual payment of US$0.72. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that American Eagle Outfitters has grown earnings per share at 14% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think American Eagle Outfitters is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for American Eagle Outfitters you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.