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Pan American Silver Corp. (TSE:PAAS) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 26th of February in order to receive the dividend, which the company will pay on the 11th of March.
Pan American Silver's next dividend payment will be US$0.07 per share, on the back of last year when the company paid a total of US$0.28 to shareholders. Based on the last year's worth of payments, Pan American Silver stock has a trailing yield of around 0.9% on the current share price of CA$41.01. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Pan American Silver paid out a comfortable 26% of its profit last year. 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. The good news is it paid out just 16% of its free cash flow in the last year.
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?
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. It's encouraging to see Pan American Silver has grown its earnings rapidly, up 32% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Pan American Silver has increased its dividend at approximately 19% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Pan American Silver? Pan American Silver has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Pan American Silver looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Pan American Silver for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Pan American Silver that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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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