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Grange Resources (ASX:GRR) Could Be A Buy For Its Upcoming Dividend

It looks like Grange Resources Limited (ASX:GRR) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Grange Resources' shares before the 12th of March in order to be eligible for the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be AU$0.02 per share, on the back of last year when the company paid a total of AU$0.02 to shareholders. Calculating the last year's worth of payments shows that Grange Resources has a trailing yield of 4.4% on the current share price of AU$0.455. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Grange Resources

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Grange Resources paid out just 15% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 14% of its free cash flow in the last year.

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It's positive to see that Grange Resources'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.

Click here to see how much of its profit Grange Resources paid out over the last 12 months.

historic-dividend
historic-dividend

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Grange Resources earnings per share are up 5.8% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Grange Resources's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

Should investors buy Grange Resources for the upcoming dividend? Earnings per share growth has been growing somewhat, and Grange Resources is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Grange Resources is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Grange Resources, and we would prioritise taking a closer look at it.

While it's tempting to invest in Grange Resources for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Grange Resources and you should be aware of it before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.