There's A Lot To Like About AngloGold Ashanti's (NYSE:AU) Upcoming US$0.91 Dividend

It looks like AngloGold Ashanti plc (NYSE:AU) is about to go ex-dividend in the next 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 of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Accordingly, AngloGold Ashanti investors that purchase the stock on or after the 28th of November will not receive the dividend, which will be paid on the 12th of December.

The company's next dividend payment will be US$0.91 per share, and in the last 12 months, the company paid a total of US$1.96 per share. Based on the last year's worth of payments, AngloGold Ashanti stock has a trailing yield of around 2.5% on the current share price of US$79.81. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether AngloGold Ashanti can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. AngloGold Ashanti paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (50%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that AngloGold Ashanti's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for AngloGold Ashanti

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see AngloGold Ashanti's earnings have been skyrocketing, up 39% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, AngloGold Ashanti could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AngloGold Ashanti has delivered 39% dividend growth per year on average over the past nine years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

From a dividend perspective, should investors buy or avoid AngloGold Ashanti? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that AngloGold Ashanti is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, it's hard to get excited about AngloGold Ashanti from a dividend perspective.

While it's tempting to invest in AngloGold Ashanti for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for AngloGold Ashanti that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking 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.