There's A Lot To Like About Peabody Energy's (NYSE:BTU) Upcoming US$0.075 Dividend
Peabody Energy Corporation (NYSE:BTU) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Peabody Energy's shares on or after the 21st of February, you won't be eligible to receive the dividend, when it is paid on the 13th of March.
The company's next dividend payment will be US$0.075 per share. Last year, in total, the company distributed US$0.30 to shareholders. Based on the last year's worth of payments, Peabody Energy has a trailing yield of 1.2% on the current stock price of US$24.63. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Peabody Energy
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Peabody Energy paid out just 4.6% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Peabody Energy generated enough free cash flow to afford its dividend. Luckily it paid out just 4.5% of its free cash flow last year.
It's positive to see that Peabody Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. With that in mind, we're encouraged by the steady growth at Peabody Energy, with earnings per share up 5.9% on average over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Peabody Energy's dividend payments per share have declined at 6.9% per year on average over the past six years, which is uninspiring. Peabody Energy is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Has Peabody Energy got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Peabody Energy is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Peabody Energy is halfway there. It's a promising combination that should mark this company worthy of closer attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for Peabody Energy (1 is potentially serious!) that you ought to be aware of before buying the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
