The board of AAON, Inc. (NASDAQ:AAON) has announced that it will pay a dividend of US$0.19 per share on the 1st of July. The dividend yield is 0.7% based on this payment, which is a little bit low compared to the other companies in the industry.
AAON's Earnings Easily Cover the Distributions
If it is predictable over a long period, even low dividend yields can be attractive. AAON 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 expand by 64.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.
AAON Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was US$0.11 in 2012, and the most recent fiscal year payment was US$0.76. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
AAON May Find It Hard To Grow The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, AAON has only grown its earnings per share at 2.9% per annum over the past five years. While growth may be thin on the ground, AAON could always pay out a higher proportion of earnings to increase shareholder returns.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for AAON (1 is concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.