Glencore plc (LON:GLEN) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 22nd of April, you won't be eligible to receive this dividend, when it is paid on the 21st of May.
Glencore's next dividend payment will be US$0.06 per share. Last year, in total, the company distributed US$0.12 to shareholders. Based on the last year's worth of payments, Glencore has a trailing yield of 2.9% on the current stock price of £3.02. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Glencore has been able to grow its dividends, or if the dividend might be cut.
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. Glencore reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Glencore paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Glencore reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Glencore has delivered 1.8% dividend growth per year on average over the past 10 years.
To Sum It Up
Has Glencore got what it takes to maintain its dividend payments? In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
So if you want to do more digging on Glencore, you'll find it worthwhile knowing the risks that this stock faces. We've identified 2 warning signs with Glencore (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.
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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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. 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.
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