Barrick Gold Corporation (TSE:ABX) Passed Our Checks, And It's About To Pay A US$0.09 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Barrick Gold Corporation (TSE:ABX) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 27th of November will not receive this dividend, which will be paid on the 15th of December.

Barrick Gold's next dividend payment will be US$0.09 per share. Last year, in total, the company distributed US$0.24 to shareholders. Last year's total dividend payments show that Barrick Gold has a trailing yield of 1.0% on the current share price of CA$31.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Barrick Gold

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. Barrick Gold has a low and conservative payout ratio of just 18% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash 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 Barrick Gold'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.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Barrick Gold has grown its earnings rapidly, up 47% a year for the past five years. Barrick Gold looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Barrick Gold's dividend payments per share have declined at 5.0% per year on average over the past 10 years, which is uninspiring. Barrick Gold is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Barrick Gold got what it takes to maintain its dividend payments? Barrick Gold has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Barrick Gold, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Barrick Gold is facing. Every company has risks, and we've spotted 4 warning signs for Barrick Gold (of which 1 is concerning!) you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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