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It looks like Yamana Gold Inc. (TSE:YRI) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Yamana Gold's shares on or after the 28th of September will not receive the dividend, which will be paid on the 14th of October.
The company's next dividend payment will be US$0.03 per share. Last year, in total, the company distributed US$0.12 to shareholders. Based on the last year's worth of payments, Yamana Gold stock has a trailing yield of around 3.0% on the current share price of CA$5.05. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Yamana Gold has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Yamana Gold paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow last year.
It's positive to see that Yamana 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Yamana Gold has grown its earnings rapidly, up 70% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Yamana Gold could have strong prospects for future increases to the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Yamana Gold dividends are largely the same as they were 10 years ago.
To Sum It Up
Is Yamana Gold worth buying for its dividend? Yamana Gold's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Yamana Gold looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Yamana Gold for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Yamana Gold and you should be aware of these before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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