Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Polymetal International plc (LON:POLY) is about to go ex-dividend in just three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Polymetal International's shares before the 9th of September in order to be eligible for the dividend, which will be paid on the 30th of September.
The company's next dividend payment will be US$0.45 per share. Last year, in total, the company distributed US$1.34 to shareholders. Last year's total dividend payments show that Polymetal International has a trailing yield of 6.6% on the current share price of £14.59. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. Polymetal International paid out more than half (56%) 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. Over the past year it paid out 113% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Polymetal International paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Polymetal International's ability to maintain its dividend.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Polymetal International has grown its earnings rapidly, up 36% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Polymetal International has lifted its dividend by approximately 24% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
From a dividend perspective, should investors buy or avoid Polymetal International? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Polymetal International paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's hard to get excited about Polymetal International from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Polymetal International, you should know about the other risks facing this business. To help with this, we've discovered 2 warning signs for Polymetal International that you should be aware of before investing in their shares.
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.
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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.
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