Royal Gold (NASDAQ:RGLD) Is Paying Out A Larger Dividend Than Last Year

Royal Gold, Inc. (NASDAQ:RGLD) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of January to $0.375. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

Our analysis indicates that RGLD is potentially overvalued!

Royal Gold's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Royal Gold's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 2.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Royal Gold Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from $0.60 total annually to $1.50. This means that it has been growing its distributions at 9.6% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Royal Gold has seen EPS rising for the last five years, at 20% per annum. Royal Gold is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Royal Gold's Dividend

Overall, we always like to see the dividend being raised, but we don't think Royal Gold will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Royal Gold (of which 2 are potentially serious!) you should know about. Is Royal Gold not quite the opportunity you were looking for? Why not check out our selection of top 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.