Antofagasta plc (LON:ANTO) Looks Interesting, And It's About To Pay A Dividend

By
Simply Wall St
Published
August 28, 2021
LSE:ANTO
Source: Shutterstock

It looks like Antofagasta plc (LON:ANTO) is about to go ex-dividend in the next 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Antofagasta investors that purchase the stock on or after the 2nd of September will not receive the dividend, which will be paid on the 1st of October.

The company's upcoming dividend is US$0.24 a share, following on from the last 12 months, when the company distributed a total of US$0.72 per share to shareholders. Calculating the last year's worth of payments shows that Antofagasta has a trailing yield of 3.6% on the current share price of £14.62. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Antofagasta has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Antofagasta

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Antofagasta paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. 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. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

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

historic-dividend
LSE:ANTO Historic Dividend August 29th 2021

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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Antofagasta's earnings have been skyrocketing, up 22% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Antofagasta has seen its dividend decline 4.6% per annum on average over the past 10 years, which is not great to see. Antofagasta 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.

The Bottom Line

Should investors buy Antofagasta for the upcoming dividend? We like Antofagasta's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

So while Antofagasta looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Antofagasta you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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