DRDGOLD Limited (NYSE:DRD) has announced that on 6th of October, it will be paying a dividend ofZAR0.1801, which a reduction from last year's comparable dividend. This means the annual payment is 6.6% of the current stock price, which is above the average for the industry.
DRDGOLD's Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, DRDGOLD's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS could expand by 59.8% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 1.9% by next year, which is in a pretty sustainable range.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from ZAR1.00 total annually to ZAR6.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that DRDGOLD has been growing its earnings per share at 60% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that DRDGOLD could prove to be a strong dividend payer.
DRDGOLD Looks Like A Great Dividend Stock
In general, we don't like to see the dividend being cut, especially when the company has such high potential like DRDGOLD does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for DRDGOLD (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is DRDGOLD not quite the opportunity you were looking for? Why not check out 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.
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