Central Asia Metals (LON:CAML) Will Pay A Dividend Of $0.09

The board of Central Asia Metals plc (LON:CAML) has announced that it will pay a dividend of $0.09 per share on the 22nd of May. The dividend yield will be in the average range for the industry at 8.4%.

Check out our latest analysis for Central Asia Metals

Central Asia Metals' Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 112% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 55.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.127 in 2014, and the most recent fiscal year payment was $0.226. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, Central Asia Metals' earnings per share has shrunk at approximately 7.3% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

We're Not Big Fans Of Central Asia Metals' Dividend

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Central Asia Metals that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of 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.