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 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Endeavour Mining's shares before the 1st of September in order to be eligible for the dividend, which will be paid on the 28th of September.
The company's next dividend payment will be US$0.40 per share, on the back of last year when the company paid a total of US$0.80 to shareholders. Looking at the last 12 months of distributions, Endeavour Mining has a trailing yield of approximately 3.9% on its current stock price of CA$26.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Endeavour Mining has been able to grow its dividends, or if the dividend might be cut.
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. Endeavour Mining distributed an unsustainably high 118% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Endeavour Mining generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.
It's good to see that while Endeavour Mining's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
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. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Endeavour Mining's earnings per share have been growing at 15% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past two years, Endeavour Mining has increased its dividend at approximately 4.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Endeavour Mining is keeping back more of its profits to grow the business.
To Sum It Up
Is Endeavour Mining an attractive dividend stock, or better left on the shelf? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Endeavour Mining's paying out such a high percentage of its profit. All things considered, we are not particularly enthused about Endeavour Mining from a dividend perspective.
In light of that, while Endeavour Mining has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Endeavour Mining has 3 warning signs we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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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