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Zimplats Holdings Limited (ASX:ZIM) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 16th of November in order to be eligible for this dividend, which will be paid on the 3rd of December.
Zimplats Holdings's upcoming dividend is US$0.41 a share, following on from the last 12 months, when the company distributed a total of US$0.41 per share to shareholders. Looking at the last 12 months of distributions, Zimplats Holdings has a trailing yield of approximately 5.0% on its current stock price of A$11.2. 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! As a result, readers should always check whether Zimplats Holdings has been able to grow its dividends, or if the dividend might be cut.
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. Zimplats Holdings has a low and conservative payout ratio of just 17% of its income after tax. A useful secondary check can be to evaluate whether Zimplats Holdings generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Zimplats Holdings'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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Zimplats Holdings's earnings have been skyrocketing, up 69% per annum for the past five years. Zimplats Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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. In the past five years, Zimplats Holdings has increased its dividend at approximately 28% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Is Zimplats Holdings worth buying for its dividend? Zimplats Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past five years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Zimplats Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Zimplats Holdings you should be aware of.
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. 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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