DRDGOLD (NYSE:DRD) Is Paying Out Less In Dividends Than Last Year

DRDGOLD Limited (NYSE:DRD) has announced it will be reducing its dividend payable on the 24th of March to US$0.10. The yield is still above the industry average at 3.4%.

See our latest analysis for DRDGOLD

DRDGOLD's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite comfortably covered by DRDGOLD's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 84% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share could rise by 59.8% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 2.0% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was R0.75 in 2012, and the most recent fiscal year payment was R8.00. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that DRDGOLD has grown earnings per share at 60% per year over the past five years. DRDGOLD is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, DRDGOLD has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.