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Anglo Asian Mining PLC (LON:AAZ) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 3rd of October to receive the dividend, which will be paid on the 31st of October.
Anglo Asian Mining's next dividend payment will be UK£0.04 per share. Last year, in total, the company distributed UK£0.08 to shareholders. Calculating the last year's worth of payments shows that Anglo Asian Mining has a trailing yield of 4.3% on the current share price of £1.52. 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! So we need to investigate whether Anglo Asian Mining can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Anglo Asian Mining paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether Anglo Asian Mining generated enough free cash flow to afford its dividend. Luckily it paid out just 15% of its free cash flow last year.
It's positive to see that Anglo Asian Mining'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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Anglo Asian Mining has grown its earnings rapidly, up 120% a year 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.
Unfortunately Anglo Asian Mining has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
Is Anglo Asian Mining worth buying for its dividend? Anglo Asian Mining has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Anglo Asian Mining, and we would prioritise taking a closer look at it.
Curious what other investors think of Anglo Asian Mining? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.