DRDGOLD (NYSE:DRD) Is Reducing Its Dividend To US$0.10
DRDGOLD Limited (NYSE:DRD) has announced it will be reducing its dividend payable on the 24th of March to US$0.10. The dividend yield of 3.4% is still a nice boost to shareholder returns, despite the cut.
See our latest analysis for DRDGOLD
DRDGOLD's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by DRDGOLD's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing 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 2.0% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from R0.75 to R8.00. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see DRDGOLD has been growing its earnings per share at 60% a year over the past five years. DRDGOLD is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments DRDGOLD has been making. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for DRDGOLD (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
