Consider This Before Buying Resolute Mining Limited (ASX:RSG) For The 1.9% Dividend

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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Resolute Mining Limited (ASX:RSG) has paid a dividend to shareholders. It currently yields 1.9%. Should it have a place in your portfolio? Let's take a look at Resolute Mining in more detail.

Check out our latest analysis for Resolute Mining

5 questions to ask before buying a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is their annual yield among the top 25% of dividend payers?
• Does it consistently pay out dividends without missing a payment of significantly cutting payout?
• Has it increased its dividend per share amount over the past?
• Can it afford to pay the current rate of dividends from its earnings?
• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

Does Resolute Mining pass our checks?

The current trailing twelve-month payout ratio for the stock is 23%, which means that the dividend is covered by earnings. However, going forward, analysts expect RSG's payout to fall to 9.7% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.9%. However, EPS should increase to A$0.11, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Resolute Mining as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Resolute Mining generates a yield of 1.9%, which is on the low-side for Metals and Mining stocks.

Next Steps:

After digging a little deeper into Resolute Mining's yield, it's easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I've compiled three essential aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for RSG’s future growth? Take a look at our free research report of analyst consensus for RSG’s outlook.
2. Valuation: What is RSG worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether RSG is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.