It looks like Kenmare Resources plc (LON:KMR) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 24th of September, you won't be eligible to receive this dividend, when it is paid on the 23rd of October.
Kenmare Resources's next dividend payment will be UK£0.023 per share, on the back of last year when the company paid a total of UK£0.11 to shareholders. Based on the last year's worth of payments, Kenmare Resources has a trailing yield of 3.3% on the current stock price of £2.56. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Kenmare Resources is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Kenmare Resources paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
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 Kenmare Resources has grown its earnings rapidly, up 81% a year for the past five years.
Unfortunately Kenmare Resources 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
Has Kenmare Resources got what it takes to maintain its dividend payments? We like that Kenmare Resources has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. All things considered, we are not particularly enthused about Kenmare Resources from a dividend perspective.
In light of that, while Kenmare Resources has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 2 warning signs for Kenmare Resources that you should be aware of before investing in their 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. 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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