Stock Analysis

Newmont's (NYSE:NEM) Dividend Will Be US$0.55

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NYSE:NEM
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Newmont Corporation's (NYSE:NEM) investors are due to receive a payment of US$0.55 per share on 16th of June. Based on this payment, the dividend yield will be 3.0%, which is fairly typical for the industry.

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Newmont Doesn't Earn Enough To Cover Its Payments

Solid dividend yields are great, but they only really help us if the payment is sustainable. 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%. 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.

Earnings per share is forecast to rise by 145.5% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 102% over the next year.

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NYSE:NEM Historic Dividend April 25th 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was US$1.20, compared to the most recent full-year payment of US$2.20. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Newmont has been growing its earnings per share at 42% a year over the past five years. 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.

In Summary

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 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 4 warning signs for Newmont that investors should take into consideration. Is Newmont not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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