Dividend Investors: Don't Be Too Quick To Buy Franco-Nevada Corporation (TSE:FNV) For Its Upcoming Dividend

It looks like Franco-Nevada Corporation (TSE:FNV) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Franco-Nevada investors that purchase the stock on or after the 5th of December will not receive the dividend, which will be paid on the 19th of December.

The company's upcoming dividend is US$0.36 a share, following on from the last 12 months, when the company distributed a total of US$1.44 per share to shareholders. Based on the last year's worth of payments, Franco-Nevada has a trailing yield of 1.2% on the current stock price of CA$171.44. If you buy this business for its dividend, you should have an idea of whether Franco-Nevada's dividend is reliable and sustainable. As a result, readers should always check whether Franco-Nevada has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Franco-Nevada

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. Franco-Nevada lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Franco-Nevada didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Franco-Nevada was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Franco-Nevada has delivered 6.1% dividend growth per year on average over the past 10 years.

We update our analysis on Franco-Nevada every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is Franco-Nevada worth buying for its dividend? It's hard to get used to Franco-Nevada paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Wondering what the future holds for Franco-Nevada? See what the 10 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.