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Newmont Corporation (NYSE:NEM) has announced that it will pay a dividend of US$0.55 per share on the 16th of June. Based on this payment, the dividend yield will be 3.3%, which is fairly typical for the industry.
Newmont Is Paying Out More Than It Is Earning
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Newmont's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Earnings per share is forecast to rise by 149.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 100%, which probably can't continue putting some pressure on the balance sheet.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from US$1.20 in 2012 to the most recent annual payment of US$2.20. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Newmont might have put its house in order since then, but we remain cautious.
Dividend Growth Could Be Constrained
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Newmont has seen EPS rising for the last five years, at 42% per annum. Although earnings per share is up nicely Newmont is paying out 175% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
Our Thoughts On Newmont's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 5 warning signs for Newmont that investors need to be conscious of moving forward. Is Newmont 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.