Centerra Gold (TSE:CG) Will Pay A Dividend Of $0.07

The board of Centerra Gold Inc. (TSE:CG) has announced that it will pay a dividend on the 29th of November, with investors receiving $0.07 per share. The dividend yield will be 3.3% based on this payment which is still above the industry average.

View our latest analysis for Centerra Gold

Centerra Gold's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Centerra Gold is unprofitable despite paying a dividend, and it is paying out 181% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

The next year is set to see EPS grow by 145.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 75%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from $0.157 total annually to $0.202. This works out to be a compound annual growth rate (CAGR) of approximately 2.5% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Come By

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. Over the past five years, it looks as though Centerra Gold's EPS has declined at around 9.4% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We're Not Big Fans Of Centerra Gold's Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Centerra Gold that investors should take into consideration. Is Centerra Gold not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.