Newmont Corporation (NYSE:NEM) will pay a dividend of $0.55 on the 29th of December. This makes the dividend yield 5.1%, which will augment investor returns quite nicely.
Newmont Is Paying Out More Than It Is Earning
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Newmont's profits didn't cover the dividend, but the company was generating enough cash instead. 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 90.0%. If the dividend continues on its recent course, the payout ratio in 12 months could be 178%, 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 $1.40 total annually to $2.20. This means that it has been growing its distributions at 4.6% per annum 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. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Newmont you should be aware of, and 1 of them doesn't sit too well with us. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
What are the risks and opportunities for Newmont?
Trading at 31.8% below our estimate of its fair value
Earnings are forecast to grow 7.56% per year
Profit margins (8%) are lower than last year (16.2%)
Large one-off items impacting financial results
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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.