It Might Not Be A Great Idea To Buy Warrior Met Coal, Inc. (NYSE:HCC) For Its Next Dividend

It looks like Warrior Met Coal, Inc. (NYSE:HCC) is about to go ex-dividend in the next 3 days. You can purchase shares before the 26th of February in order to receive the dividend, which the company will pay on the 8th of March.

Warrior Met Coal's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.20 per share. Last year's total dividend payments show that Warrior Met Coal has a trailing yield of 0.9% on the current share price of $22.73. 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 Warrior Met Coal can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Warrior Met Coal

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Warrior Met Coal is paying out an acceptable 55% of its profit, a common payout level among most companies.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Warrior Met Coal's 28% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Warrior Met Coal's dividend payments are broadly unchanged compared to where they were four years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

The Bottom Line

Should investors buy Warrior Met Coal for the upcoming dividend? We're not overly enthused to see Warrior Met Coal's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. We're unconvinced on the company's merits, and think there might be better opportunities out there.

However if you're still interested in Warrior Met Coal as a potential investment, you should definitely consider some of the risks involved with Warrior Met Coal. Our analysis shows 4 warning signs for Warrior Met Coal that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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