American Eagle Outfitters' (NYSE:AEO) Dividend Will Be $0.125

American Eagle Outfitters, Inc.'s (NYSE:AEO) investors are due to receive a payment of $0.125 per share on 25th of April. The dividend yield will be 4.6% based on this payment which is still above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. American Eagle Outfitters' stock price has reduced by 36% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

American Eagle Outfitters' Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, American Eagle Outfitters' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 3.9% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 27%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Check out our latest analysis for American Eagle Outfitters

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The last annual payment of $0.50 was flat on the annual payment from10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that American Eagle Outfitters has grown earnings per share at 11% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for American Eagle Outfitters' prospects of growing its dividend payments in the future.

We Really Like American Eagle Outfitters' Dividend

Overall, we like to see the dividend staying consistent, and we think American Eagle Outfitters might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, American Eagle Outfitters has 2 warning signs (and 1 which can't be ignored) we think you should know about. 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.