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Is It Smart To Buy Royal Gold, Inc. (NASDAQ:RGLD) Before It Goes Ex-Dividend?

Royal Gold, Inc. (NASDAQ:RGLD) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 3rd of October in order to be eligible for this dividend, which will be paid on the 18th of October.

Royal Gold's next dividend payment will be US$0.3 per share, on the back of last year when the company paid a total of US$1.1 to shareholders. Calculating the last year's worth of payments shows that Royal Gold has a trailing yield of 0.8% on the current share price of $125.59. If you buy this business for its dividend, you should have an idea of whether Royal Gold's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Royal Gold

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Royal Gold paid out 74% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:RGLD Historical Dividend Yield, September 28th 2019
NasdaqGS:RGLD Historical Dividend Yield, September 28th 2019

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Royal Gold earnings per share are up 8.3% per annum over the last five years. Decent historical earnings per share growth suggests Royal Gold has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Royal Gold has delivered an average of 13% per year annual increase in its dividend, based on the past ten 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.

Final Takeaway

Has Royal Gold got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Royal Gold's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Royal Gold today.

Wondering what the future holds for Royal Gold? See what the ten analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.