Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Teck Resources Limited (TSE:TECK.B) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 12th of December to receive the dividend, which will be paid on the 31st of December.
Teck Resources’s upcoming dividend is CA$0.05 a share, following on from the last 12 months, when the company distributed a total of CA$0.30 per share to shareholders. Calculating the last year’s worth of payments shows that Teck Resources has a trailing yield of 1.9% on the current share price of CA$21.19. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it’s growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Teck Resources is paying out just 6.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Teck Resources generated enough free cash flow to afford its dividend. What’s good is that dividends were well covered by free cash flow, with the company paying out 7.7% of its cash flow last year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Teck Resources’s earnings per share have risen 12% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. It looks like the Teck Resources dividends are largely the same as they were ten years ago.
To Sum It Up
Is Teck Resources an attractive dividend stock, or better left on the shelf? Teck Resources has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. Teck Resources looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
Ever wonder what the future holds for Teck Resources? See what the 18 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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