Altius Minerals Corporation (TSE:ALS) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Altius Minerals investors that purchase the stock on or after the 29th of November will not receive the dividend, which will be paid on the 15th of December.
The company's next dividend payment will be CA$0.08 per share. Last year, in total, the company distributed CA$0.32 to shareholders. Calculating the last year's worth of payments shows that Altius Minerals has a trailing yield of 1.7% on the current share price of CA$18.74. 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 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. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.
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.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Altius Minerals's 9.3% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, Altius Minerals has lifted its dividend by approximately 17% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Altius Minerals is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
Is Altius Minerals an attractive dividend stock, or better left on the shelf? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Altius Minerals looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Curious what other investors think of Altius Minerals? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.