Amcor plc (NYSE:AMCR) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Amcor's shares before the 27th of February to receive the dividend, which will be paid on the 19th of March.

The company's next dividend payment will be US$0.125 per share, and in the last 12 months, the company paid a total of US$0.50 per share. Last year's total dividend payments show that Amcor has a trailing yield of 5.4% on the current share price of US$9.21. If you buy this business for its dividend, you should have an idea of whether Amcor's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Amcor distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Amcor generated enough free cash flow to afford its dividend. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Amcor fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Amcor's earnings are down 2.2% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, Amcor has lifted its dividend by approximately 0.8% a year on average.

Final Takeaway

Is Amcor an attractive dividend stock, or better left on the shelf? Earnings per share have been in decline, which is not encouraging. What's more, Amcor is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Amcor despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 3 warning signs for Amcor that we strongly recommend you have a look at before investing in the company.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.