Yahoo Finance Grange Resources (ASX:GRR) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy Grange Resources Limited (ASX:GRR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 12th of March, you won't be eligible to receive this dividend, when it is paid on the 30th of March.
Grange Resources'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$0.04 to shareholders. Looking at the last 12 months of distributions, Grange Resources has a trailing yield of approximately 7.3% on its current stock price of A$0.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Grange Resources
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. Grange Resources has a low and conservative payout ratio of just 17% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 16% of its free cash flow last year.
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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Grange Resources's earnings have been skyrocketing, up 52% per annum for the past five years. Grange Resources earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Grange Resources dividends are largely the same as they were 10 years ago.
To Sum It Up
Is Grange Resources an attractive dividend stock, or better left on the shelf? Grange Resources has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Grange Resources looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Grange Resources for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Grange Resources that we recommend you consider before investing in the business.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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