Northern Star Resources Limited (ASX: NST) is set to trade ex-dividend within the next four days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the record date. Thus, you can buy Northern Star Resources shares before September 6 in order to receive the dividend that the company will pay on September 29.
The company’s next dividend payment will be AU $ 0.095 per share, and over the past 12 months the company has paid a total of AU $ 0.19 per share. Calculating the value of last year’s payouts shows Northern Star Resources has a return of 1.9% on the current share price of AU $ 9.9. If you are buying this company for its dividend, you should know if Northern Star Resources’ dividend is reliable and sustainable. So we need to determine whether Northern Star Resources can afford its dividend and whether the dividend could increase.
See our latest review for Northern Star Resources
Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Northern Star Resources paid only 17% of its profits last year, which in our opinion is moderately low and leaves a lot of room for unforeseen circumstances. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. In the past year, it paid 62% of its free cash flow in the form of dividends, within the range typical of most companies.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If business goes into recession and the dividend is reduced, the company could experience a sharp drop in value. It is encouraging to see that Northern Star Resources has experienced rapid profit growth, rising 33% per year over the past five years.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Northern Star Resources has generated an average annual increase of 25% per annum in its dividend, based on dividend payments for the past nine years. It’s great to see earnings per share increasing rapidly over several years, and dividends per share increasing at the same time.
The bottom line
Does Northern Star Resources have what it takes to maintain its dividend payments? Earnings per share have been growing at a good pace lately and over the past year Northern Star Resources has paid out less than half of its earnings and just over half of its free cash flow. Overall, we think this is an attractive combination worthy of further research.
With this in mind, an essential part of in-depth stock research is being aware of the risks stocks currently face. Note that Northern Star Resources displays 3 warning signs in our investment analysis, and 2 of them should not be ignored …
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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