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Amerigo Resources Ltd. (TSE:ARG) will pay a dividend of $0.03 on the 20th of March. The dividend yield will be 6.6% based on this payment which is still above the industry average.
See our latest analysis for Amerigo Resources
Amerigo Resources' Future Dividends May Potentially Be At Risk
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Amerigo Resources' dividend made up quite a large proportion of earnings but only 26% of free cash flows. This leaves plenty of cash for reinvestment into the business.
EPS is set to grow by 9.6% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 125%, which probably can't continue without starting to put some pressure on the balance sheet.
Amerigo Resources' Dividend Has Lacked Consistency
The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 3 years was $0.0618 in 2022, and the most recent fiscal year payment was $0.0824. This means that it has been growing its distributions at 10% per annum over that time. Amerigo Resources has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Has Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Amerigo Resources has grown earnings per share at 9.6% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.
Amerigo Resources Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Amerigo Resources that investors need to be conscious of moving forward. Is Amerigo Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.