Agnico Eagle Mines (NYSE:AEM) Has Affirmed Its Dividend Of $0.40

Agnico Eagle Mines Limited (NYSE:AEM) will pay a dividend of $0.40 on the 15th of December. Based on this payment, the dividend yield will be 3.4%, which is fairly typical for the industry.

View our latest analysis for Agnico Eagle Mines

Agnico Eagle Mines Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Agnico Eagle Mines' dividend was only 30% of earnings, however it was paying out 129% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 74.7%. If the dividend continues along recent trends, we estimate the payout ratio could reach 140%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was $0.80, compared to the most recent full-year payment of $1.60. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Agnico Eagle Mines might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Agnico Eagle Mines has impressed us by growing EPS at 62% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Agnico Eagle Mines' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Agnico Eagle Mines' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Agnico Eagle Mines is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Agnico Eagle Mines (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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