Royal Gold, Inc. (NASDAQ:RGLD) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 7th of January in order to be eligible for this dividend, which will be paid on the 22nd of January.
Royal Gold's next dividend payment will be US$0.30 per share. Last year, in total, the company distributed US$1.12 to shareholders. Last year's total dividend payments show that Royal Gold has a trailing yield of 1.1% on the current share price of $106.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Royal Gold has been able to grow its dividends, or if the dividend might be cut.
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. Royal Gold paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Royal Gold generated enough free cash flow to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past year.
It's positive to see that Royal Gold'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.
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 Royal Gold's earnings have been skyrocketing, up 35% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Royal Gold has lifted its dividend by approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
From a dividend perspective, should investors buy or avoid Royal Gold? We love that Royal Gold is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Royal Gold looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Royal Gold for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Royal Gold and you should be aware of it before buying any 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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