Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Trans-Siberian Gold plc (LON:TSG) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 9th of July, you won't be eligible to receive this dividend, when it is paid on the 28th of July.
Trans-Siberian Gold's upcoming dividend is UK£0.023 a share, following on from the last 12 months, when the company distributed a total of UK£0.083 per share to shareholders. Last year's total dividend payments show that Trans-Siberian Gold has a trailing yield of 9.0% on the current share price of £0.865. If you buy this business for its dividend, you should have an idea of whether Trans-Siberian Gold's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Trans-Siberian Gold is paying out an acceptable 50% of its profit, a common payout level among most companies. 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 31% 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Trans-Siberian Gold's earnings have been skyrocketing, up 30% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Trans-Siberian Gold could have strong prospects for future increases to the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past three years, Trans-Siberian Gold has increased its dividend at approximately 10% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Should investors buy Trans-Siberian Gold for the upcoming dividend? Trans-Siberian Gold's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Trans-Siberian Gold is facing. Case in point: We've spotted 4 warning signs for Trans-Siberian Gold you should be aware of.
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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