Readers wishing to buy Newcrest Mining Limited (ASX: NCM) for its dividend will have to act shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the registration date which is the day on which shareholders must be entered in the books of the company to receive a dividend. It is important to know the ex-dividend date, as any transaction in the share must have been settled by the registration date at the latest. As a result, Newcrest Mining investors who purchase the shares on or after August 26 will not receive the dividend, which will be paid on September 30.
The company’s next dividend payment will be US $ 0.40 per share. Last year, in total, the company distributed US $ 0.55 to shareholders. Based on the value of last year’s payouts, the Newcrest Mining share has a rolling yield of around 3.1% on the current share price of AU $ 24.71. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
See our latest review for Newcrest Mining
Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Newcrest Mining pays only 5.3% of its after-tax profit, which is comfortably low and leaves a lot of leeway in the event of adverse events. A useful secondary check can be to assess whether Newcrest Mining has generated enough free cash flow to pay its dividend. It paid 22% of its free cash flow as dividends last year, which is cautiously low.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. It is encouraging to see that Newcrest Mining has grown its profits rapidly, increasing by 27% per year over the past five years. Newcrest Mining looks like a true growth company, with rapidly growing earnings per share and the company reinvesting most of its profits back into the business.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Since our data began 10 years ago, Newcrest Mining has increased its dividend by around 6.4% per year on average. We are happy to see dividends increasing alongside earnings over a number of years, which may be a sign that the company intends to share the growth with its shareholders.
From a dividend perspective, should investors buy or avoid Newcrest Mining? Newcrest Mining increased earnings per share while reinvesting in the business. Unfortunately, the dividend has been reduced at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall, we think this is an attractive combination worthy of further research.
On that note, you’ll want to research the risks Newcrest Mining faces. Our analysis shows 2 warning signs for Newcrest Mining which we strongly recommend that you consult before investing in the business.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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