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The board of Agnico Eagle Mines Limited (NYSE:AEM) has announced that it will pay a dividend of $0.40 per share on the 15th of September. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.
See our latest analysis for Agnico Eagle Mines
Agnico Eagle Mines Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Agnico Eagle Mines was paying only paying out a fraction of earnings, but the payment was a massive 116% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to fall by 73.1% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 135%, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.80 in 2013 to the most recent total annual payment of $1.60. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Agnico Eagle Mines has grown earnings per share at 48% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Our Thoughts On Agnico Eagle Mines' Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Agnico Eagle Mines you should be aware of, and 1 of them is significant. Is Agnico Eagle Mines not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.