Newmont Corporation's (NYSE:NEM) investors are due to receive a payment of US$0.55 per share on 24th of March. This means that the annual payment will be 3.2% of the current stock price, which is in line with the average for the industry.
Newmont Doesn't Earn Enough To Cover Its Payments
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Newmont's dividend made up quite a large proportion of earnings but only 58% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Over the next year, EPS is forecast to expand by 20.1%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 108%, which probably can't continue putting some pressure on the balance sheet.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from US$0.80 to US$2.20. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Newmont has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Newmont's Dividend Might Lack Growth
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 Newmont has been growing its earnings per share at 58% a year over the past five years. However, Newmont isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. For example, we've picked out 2 warning signs for Newmont that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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