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Avery Dennison Corporation's (NYSE:AVY) periodic dividend will be increasing on the 18th of June to $0.94, with investors receiving 6.8% more than last year's $0.88. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.
Our free stock report includes 2 warning signs investors should be aware of before investing in Avery Dennison. Read for free now.
Avery Dennison's Future Dividend Projections Appear Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Avery Dennison was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 37.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.
View our latest analysis for Avery Dennison
Avery Dennison 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. Since 2015, the dividend has gone from $1.40 total annually to $3.52. This implies that the company grew its distributions at a yearly rate of about 9.7% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Avery Dennison has only grown its earnings per share at 4.9% per annum over the past five years. Growth of 4.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
We Really Like Avery Dennison's Dividend
Overall, a dividend increase is always good, and we think that Avery Dennison is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Avery Dennison that you should be aware of before investing. Is Avery Dennison not quite the opportunity you were looking for? Why not check out our selection of top 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.