Agnico Eagle Mines (NYSE:AEM) Will Pay A Dividend Of $0.40

The board of Agnico Eagle Mines Limited (NYSE:AEM) has announced that it will pay a dividend on the 15th of September, with investors receiving $0.40 per share. This makes the dividend yield 3.4%, which will augment investor returns quite nicely.

Check out our latest analysis for Agnico Eagle Mines

Agnico Eagle Mines Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Agnico Eagle Mines was paying a whopping 116% as a dividend, but this only made up 31% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to fall by 73.1%. If the dividend continues along recent trends, we estimate the payout ratio could reach 135%, 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 means that it has been growing its distributions at 7.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Agnico Eagle Mines has been growing its earnings per share at 48% a 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 would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Agnico Eagle Mines you should be aware of, and 1 of them is concerning. 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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