Endeavour Mining plc (TSE:EDV) stock is about to trade ex-dividend in four days. 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. Therefore, if you purchase Endeavour Mining's shares on or after the 23rd of February, you won't be eligible to receive the dividend, when it is paid on the 28th of March.
The company's upcoming dividend is US$0.41 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Based on the last year's worth of payments, Endeavour Mining stock has a trailing yield of around 3.7% on the current share price of CA$29.6. 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 investigate whether Endeavour Mining can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Endeavour Mining paid out 213% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.
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. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
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. With that in mind, we're encouraged by the steady growth at Endeavour Mining, with earnings per share up 2.2% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Endeavour Mining has delivered an average of 5.3% per year annual increase in its dividend, based on the past two years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Endeavour Mining an attractive dividend stock, or better left on the shelf? Endeavour Mining has been slowly growing its earnings per share, and it has interesting dividend payout behaviour that we think is worth highlighting. Specifically, it's paying out just 29% of its cash flow but a huge 213% of its income. This is a interesting combination, but the high payout ratio is a definite concern. To summarise, Endeavour Mining looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you want to look further into Endeavour Mining, it's worth knowing the risks this business faces. For example - Endeavour Mining has 3 warning signs we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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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