Evolution Mining Limited (ASX:EVN) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy Evolution Mining Limited (ASX:EVN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Evolution Mining's shares on or after the 3rd of September, you won't be eligible to receive the dividend, when it is paid on the 3rd of October.

The company's next dividend payment will be AU$0.13 per share, and in the last 12 months, the company paid a total of AU$0.26 per share. Calculating the last year's worth of payments shows that Evolution Mining has a trailing yield of 3.1% on the current share price of AU$8.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Evolution Mining paying out a modest 43% of its earnings. A useful secondary check can be to evaluate whether Evolution Mining generated enough free cash flow to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.

It's positive to see that Evolution Mining's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Evolution Mining

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Evolution Mining's earnings have been skyrocketing, up 21% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Evolution Mining has delivered an average of 29% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Evolution Mining for the upcoming dividend? It's great that Evolution Mining is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Evolution Mining looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Evolution Mining is facing. For example - Evolution Mining has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.