Here’s What We Like About Aon’s (NYSE:AON) Upcoming Dividend #CanadaFinance

Aon plc (NYSE:AON) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Accordingly, Aon investors that purchase the stock on or after the 1st of May will not receive the dividend, which will be paid on the 15th of May.

The company’s next dividend payment will be US$0.745 per share. Last year, in total, the company distributed US$2.98 to shareholders. Based on the last year’s worth of payments, Aon stock has a trailing yield of around 0.9% on the current share price of US$335.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Aon can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Aon is paying out just 21% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

See our latest analysis for Aon

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

Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we’re glad to see Aon’s earnings per share have risen 14% per annum over the last five years.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Aon has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.