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Should Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) Be Part Of Your Dividend Portfolio?

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Could Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A slim 0.8% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Compañía de Minas BuenaventuraA could have potential. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

NYSE:BVN Historical Dividend Yield, October 3rd 2019
NYSE:BVN Historical Dividend Yield, October 3rd 2019

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Although Compañía de Minas BuenaventuraA pays a dividend, it was loss-making during the past year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Compañía de Minas BuenaventuraA paid out 56% of its free cash flow last year, which is acceptable, but is starting to limit the amount of earnings that can be reinvested into the business.

Consider getting our latest analysis on Compañía de Minas BuenaventuraA's financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Compañía de Minas BuenaventuraA's dividend payments. Its dividend payments have fallen by 20% or more on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was US$0.11 in 2009, compared to US$0.12 last year. Its dividends have grown at less than 1% per annum over this time frame.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Compañía de Minas BuenaventuraA has grown its earnings per share at 22% per annum over the past five years.

Conclusion

To summarise, shareholders should always check that Compañía de Minas BuenaventuraA's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that Compañía de Minas BuenaventuraA paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Compañía de Minas BuenaventuraA out there.

Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 6 analysts we track are forecasting for Compañía de Minas BuenaventuraA for free with public analyst estimates for the company.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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.