Stock Analysis

Newmont (NYSE:NEM) Will Pay A Dividend Of $0.55

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NYSE:NEM
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Newmont Corporation (NYSE:NEM) will pay a dividend of $0.55 on the 22nd of September. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Newmont's stock price has reduced by 34% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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Newmont Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Newmont's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 172.4%. If the dividend continues on its recent course, the payout ratio in 12 months could be 124%, which is a bit high and could start applying pressure to the balance sheet.

historic-dividend
NYSE:NEM Historic Dividend August 10th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was $1.40, compared to the most recent full-year payment of $2.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Newmont Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Newmont has been growing its earnings per share at 67% a year over the past five years. Although earnings per share is up nicely Newmont is paying out 236% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On Newmont's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Newmont's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. 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 3 warning signs for Newmont that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

What are the risks and opportunities for Newmont?

Newmont Corporation engages in the production and exploration of gold.

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Rewards

  • Trading at 31.8% below our estimate of its fair value

  • Earnings are forecast to grow 7.56% per year

Risks

  • Profit margins (8%) are lower than last year (16.2%)

  • Large one-off items impacting financial results

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