Rand Mining (ASX:RND) Will Pay A Dividend Of A$0.10

Rand Mining Limited's (ASX:RND) investors are due to receive a payment of A$0.10 per share on 15th of November. The dividend yield is 6.5% based on this payment, which is a little bit low compared to the other companies in the industry.

Our analysis indicates that RND is potentially undervalued!

Rand Mining Doesn't Earn Enough To Cover Its Payments

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Rand Mining was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

If the company can't turn things around, EPS could fall by 7.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 115%, which could put the dividend under pressure if earnings don't start to improve.

Rand Mining Doesn't Have A Long Payment History

Rand Mining's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The last annual payment of A$0.10 was flat on the annual payment from5 years ago. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Rand Mining's EPS has declined at around 7.4% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Rand Mining's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Rand Mining is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Rand Mining has 3 warning signs (and 1 which is potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.