Today is Wednesday, December 18, 2019, and this is your daily dividend safety update. Today we’re looking at Ambev (NYSE: ABEV) stock to see whether its 3.13% dividend is safe.
High-yield dividend stocks can be very useful to investors of all ages. Younger investors can use dividend reinvestment plans (DRIPs) to grow their portfolios exponentially over time, while retirees can use them to generate passive income.
In both cases, it’s preferable to buy dividend stocks with steady or rising dividends – and avoid those that cut their dividends.
Let’s look at the payout ratio, cash flow growth, and dividend history of Ambev to gauge the probability of a dividend cut in the next few years.
Payout Ratio (Dividends/Earnings)
Ambev has a payout ratio of 53.96%. That’s low enough for us! Payout ratio equals dividends per share divided by earnings per share. A low payout ratio indicates that the company has plenty of money to cover its dividend. We’d be more concerned if the ratio was closer to 100% (or over it).
Cash Flow Growth Year-Over-Year
Ambev has not grown its cash flow in the last year. That’s a bad omen for dividend investors. No cash flow means no dividend, so if cash flow isn’t growing, that’s a problem for us.
Dividend History & Recent Cuts
Ambev has a recent history of dividend cuts. In fact, it’s only been 1 year since the last cut. That’s not a good sign. Companies that have recently cut their dividend are generally more likely to cut them again.
The Takeaway
Ambev stock has failed 2 of our 3 dividend safety metrics. With that in mind, we believe a dividend cut is likely in the next few years.
Editor’s Note: We’ve been keeping an eye on some dividend stocks that could be better for your income portfolio than Ambev. These dividends are much bigger — and safer — than the paltry yields many investors settle for. Enter your email below to learn more.
