The board of Sandstorm Gold Ltd. (TSE:SSL) has announced that it will pay a dividend of $0.02 per share on the 27th of January. The dividend yield is 1.1% based on this payment, which is a little bit low compared to the other companies in the industry.
View our latest analysis for Sandstorm Gold
Sandstorm Gold's Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Sandstorm Gold was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to fall by 47.7%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 52%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Sandstorm Gold Is Still Building Its Track Record
It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Sandstorm Gold has seen EPS rising for the last five years, at 37% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
We should note that Sandstorm Gold has issued stock equal to 56% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Sandstorm Gold is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Sandstorm Gold that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About TSX:SSL
Proven track record with moderate growth potential.
