Peabody Energy Corporation (NYSE:BTU) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 20th of August will not receive this dividend, which will be paid on the 11th of September.
Peabody Energy's upcoming dividend is US$0.14 a share, following on from the last 12 months, when the company distributed a total of US$0.58 per share to shareholders. Based on the last year's worth of payments, Peabody Energy has a trailing yield of 3.2% on the current stock price of $18.32. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Peabody Energy can afford its dividend, and if the dividend could grow.
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. Peabody Energy has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether Peabody Energy generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 8.8% of its cash flow last year.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Peabody Energy's earnings have been skyrocketing, up 48% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Peabody Energy looks like a promising growth company.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 2 years, Peabody Energy has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Has Peabody Energy got what it takes to maintain its dividend payments? Peabody Energy has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Peabody Energy, and we would prioritise taking a closer look at it.
Wondering what the future holds for Peabody Energy? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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