AAP - Advance Auto Parts Did Too Much Too Fast On the Dividend
2023-06-05 09:15:00 ET
One way that a company can reward its shareholders is by paying a dividend. But fairly frequently, dividends end up being cut, which is not particularly shareholder-friendly. There's a fine line that has to be walked to ensure that a dividend is sustainable.
Advance Auto Parts (NYSE: AAP) tripped over that line and ended up cutting its dividend by over 80%. Here's why investors should have seen trouble on the horizon -- and what to look for at other companies, too.
Advance Auto Parts, which operates a chain of aftermarket auto parts stores, started 2019 paying a quarterly dividend of $0.06 per share. In the final quarter of that year, it increased the dividend to $0.25 per share. That's a huge increase in both absolute and percentage terms. But the board of directors wasn't done.
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Advance Auto Parts Did Too Much Too Fast On the Dividend