Caledonia Mining Corporation Plc (TSE:CAL) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 14th of May in order to receive the dividend, which the company will pay on the 29th of May.
Caledonia Mining's next dividend payment will be CA$0.075 per share. Last year, in total, the company distributed CA$0.30 to shareholders. Looking at the last 12 months of distributions, Caledonia Mining has a trailing yield of approximately 2.2% on its current stock price of CA$19. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Caledonia Mining is paying out just 7.2% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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.
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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Caledonia Mining has grown its earnings rapidly, up 55% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, seven years ago, Caledonia Mining has lifted its dividend by approximately 3.7% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Has Caledonia Mining got what it takes to maintain its dividend payments? We like that Caledonia Mining has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Caledonia Mining's dividend merits.
In light of that, while Caledonia Mining has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Caledonia Mining has 5 warning signs (and 2 which are concerning) we think you should know about.
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.
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