Newmont Corporation (NYSE:NEM) will pay a dividend of US$0.55 on the 16th of June. Based on this payment, the dividend yield will be 3.0%, which is fairly typical 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, the company was paying out 175% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 72%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to expand by 149.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 101%, which is a bit high and could start applying pressure to the balance sheet.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from US$1.20 to US$2.20. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
Dividend Growth Could Be Constrained
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Newmont has seen EPS rising for the last five years, at 42% per annum. Although earnings per share is up nicely Newmont is paying out 175% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
Our Thoughts On Newmont's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for Newmont that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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