Peabody Energy's (NYSE:BTU) Dividend Will Be $0.075

Peabody Energy Corporation (NYSE:BTU) has announced that it will pay a dividend of $0.075 per share on the 5th of June. Including this payment, the dividend yield on the stock will be 1.4%, which is a modest boost for shareholders' returns.

Check out our latest analysis for Peabody Energy

Peabody Energy's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Peabody Energy's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 29.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 7.3%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Peabody Energy's Dividend Has Lacked Consistency

It's comforting to see that Peabody Energy has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of $0.46 in 2018 to the most recent total annual payment of $0.30. This works out to be a decline of approximately 6.9% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. In the last five years, Peabody Energy's earnings per share has shrunk at approximately 2.3% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Peabody Energy you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.