Only Two Days Left To Cash In On Anglo American Platinum's (JSE:AMS) Dividend

Readers hoping to buy Anglo American Platinum Limited (JSE:AMS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 10th of March to receive the dividend, which will be paid on the 15th of March.

Anglo American Platinum's next dividend payment will be R35.35 per share, and in the last 12 months, the company paid a total of R177 per share. Last year's total dividend payments show that Anglo American Platinum has a trailing yield of 8.6% on the current share price of ZAR2050. If you buy this business for its dividend, you should have an idea of whether Anglo American Platinum's dividend is reliable and sustainable. As a result, readers should always check whether Anglo American Platinum has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Anglo American Platinum

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Anglo American Platinum paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Anglo American Platinum generated enough free cash flow to afford its dividend. It paid out 100% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Anglo American Platinum paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Anglo American Platinum to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Anglo American Platinum's earnings have been skyrocketing, up 73% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Anglo American Platinum has delivered 38% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Should investors buy Anglo American Platinum for the upcoming dividend? We like that Anglo American Platinum has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about Anglo American Platinum from a dividend perspective.

On that note, you'll want to research what risks Anglo American Platinum is facing. Be aware that Anglo American Platinum is showing 3 warning signs in our investment analysis, and 1 of those is significant...

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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