Could Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
While Compañía de Minas BuenaventuraA’s 0.9% dividend yield is not the highest, we think its lengthy payment history is quite interesting. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we’ll go through this below.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. Although it reported a loss over the past 12 months, Compañía de Minas BuenaventuraA currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
The company paid out 54% of its free cash flow, which is not bad per se, but does start to limit the amount of cash Compañía de Minas BuenaventuraA has available to meet other needs.
We update our data on Compañía de Minas BuenaventuraA every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Compañía de Minas BuenaventuraA has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past ten-year period, the first annual payment was US$0.11 in 2010, compared to US$0.12 last year. Its dividends have grown at less than 1% per annum over this time frame.
We’re glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don’t think this is an attractive combination.
Dividend Growth Potential
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. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it’s great to see Compañía de Minas BuenaventuraA has grown its earnings per share at 26% per annum over the past five years.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We’re not keen on the fact that Compañía de Minas BuenaventuraA paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Ultimately, Compañía de Minas BuenaventuraA comes up short on our dividend analysis. It’s not that we think it is a bad company – just that there are likely more appealing dividend prospects out there on this analysis.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Compañía de Minas BuenaventuraA analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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