Readers hoping to buy Endeavour Mining plc (TSE:EDV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Endeavour Mining investors that purchase the stock on or after the 9th of September will not receive the dividend, which will be paid on the 28th of September.
The company's next dividend payment will be US$0.28 per share, and in the last 12 months, the company paid a total of US$0.56 per share. Calculating the last year's worth of payments shows that Endeavour Mining has a trailing yield of 2.3% on the current share price of CA$30.92. If you buy this business for its dividend, you should have an idea of whether Endeavour Mining's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Endeavour Mining paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Endeavour Mining generated enough free cash flow to afford its dividend. Luckily it paid out just 8.9% of its free cash flow last year.
It's positive to see that Endeavour Mining's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Endeavour Mining has grown its earnings rapidly, up 39% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Given that Endeavour Mining has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Is Endeavour Mining an attractive dividend stock, or better left on the shelf? We love that Endeavour Mining is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Endeavour Mining, and we would prioritise taking a closer look at it.
So while Endeavour Mining looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for Endeavour Mining that we strongly recommend you have a look at before investing in the company.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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