Don't Buy Centamin plc (LON:CEY) For Its Next Dividend Without Doing These Checks
It looks like Centamin plc (LON:CEY) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Centamin's shares before the 31st of August in order to be eligible for the dividend, which will be paid on the 29th of September.
The company's next dividend payment will be US$0.02 per share. Last year, in total, the company distributed US$0.04 to shareholders. Last year's total dividend payments show that Centamin has a trailing yield of 3.6% on the current share price of £0.8775. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Centamin
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. Centamin paid out 66% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Centamin generated enough free cash flow to afford its dividend. Over the last year it paid out 69% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Centamin's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Centamin's earnings per share have been shrinking at 4.1% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, Centamin has lifted its dividend by approximately 9.7% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Is Centamin an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Centamin's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
With that being said, if you're still considering Centamin as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 2 warning signs for Centamin you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
