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It looks like Central Asia Metals plc (LON:CAML) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 3rd of October, you won't be eligible to receive this dividend, when it is paid on the 25th of October.
Central Asia Metals's next dividend payment will be UK£0.07 per share. Last year, in total, the company distributed UK£0.2 to shareholders. Looking at the last 12 months of distributions, Central Asia Metals has a trailing yield of approximately 7.0% on its current stock price of £2.03. If you buy this business for its dividend, you should have an idea of whether Central Asia Metals's dividend is reliable and sustainable. So we need to investigate whether Central Asia Metals can afford its dividend, and if the dividend could grow.
View our latest analysis for Central Asia Metals
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Central Asia Metals is paying out an acceptable 60% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Central Asia Metals generated enough free cash flow to afford its dividend. It distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Central Asia Metals'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Central Asia Metals's earnings per share have fallen at approximately 11% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last seven years, Central Asia Metals has lifted its dividend by approximately 8.6% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.