Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Northern Star Resources Limited (ASX:NST) is about to trade ex-dividend in the next four days. You can purchase shares before the 8th of September in order to receive the dividend, which the company will pay on the 30th of September.
Northern Star Resources's next dividend payment will be AU$0.20 per share. Last year, in total, the company distributed AU$0.19 to shareholders. Last year's total dividend payments show that Northern Star Resources has a trailing yield of 1.4% on the current share price of A$13.52. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Northern Star Resources paying out a modest 46% of its earnings. A useful secondary check can be to evaluate whether Northern Star Resources generated enough free cash flow to afford its dividend. The good news is it paid out just 14% of its free cash flow in the 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Northern Star Resources's earnings per share have risen 15% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
We'd also point out that Northern Star Resources issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past eight years, Northern Star Resources has increased its dividend at approximately 29% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Northern Star Resources an attractive dividend stock, or better left on the shelf? It's great that Northern Star Resources is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Northern Star Resources looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Northern Star Resources has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Northern Star Resources that you should be aware of before investing in their shares.
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.
This article by Simply Wall St is general in nature. 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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