What To Know Before Buying Anglo American plc (LON:AAL) For Its Dividend
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Anglo American plc (LON:AAL) has paid a dividend to shareholders. It currently yields 4.7%. Does Anglo American tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Anglo American
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Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
Is it paying an annual yield above 75% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has dividend per share risen in the past couple of years?
Is its earnings sufficient to payout dividend at the current rate?
Will the company be able to keep paying dividend based on the future earnings growth?
How well does Anglo American fit our criteria?
The current trailing twelve-month payout ratio for the stock is 43%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 40% which, assuming the share price stays the same, leads to a dividend yield of around 4.4%. In addition to this, EPS is forecasted to fall to $2.29 in the upcoming year.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Dividend payments from Anglo American have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, Anglo American produces a yield of 4.7%, which is on the low-side for Metals and Mining stocks.
Next Steps:
If Anglo American is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three pertinent factors you should further research:
Future Outlook: What are well-informed industry analysts predicting for AAL’s future growth? Take a look at our free research report of analyst consensus for AAL’s outlook.
Valuation: What is AAL worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AAL is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
