It looks like Hochschild Mining plc (LON:HOC) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 29th of August in order to be eligible for this dividend, which will be paid on the 19th of September.
Hochschild Mining's next dividend payment will be US$0.02 per share, and in the last 12 months, the company paid a total of US$0.039 per share. Looking at the last 12 months of distributions, Hochschild Mining has a trailing yield of approximately 1.5% on its current stock price of £2.068. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Hochschild Mining distributed an unsustainably high 150% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Hochschild Mining fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
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 Hochschild Mining has grown its earnings rapidly, up 54% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hochschild Mining's dividend payments are broadly unchanged compared to where they were ten years ago.
The Bottom Line
From a dividend perspective, should investors buy or avoid Hochschild Mining? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. To summarise, Hochschild Mining looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Curious what other investors think of Hochschild Mining? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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.
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