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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the last few years Lundin Mining Corporation (TSE:LUN) has paid a dividend to shareholders. Today it yields 1.8%. Does Lundin Mining tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Lundin Mining
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is its annual yield among the top 25% of dividend-paying companies?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has it increased its dividend per share amount over the past?
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Is is able to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Lundin Mining pass our checks?
Lundin Mining has a trailing twelve-month payout ratio of 33%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 16% which, assuming the share price stays the same, leads to a dividend yield of around 2.0%. However, EPS should increase to $0.34, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Lundin Mining as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Lundin Mining has a yield of 1.8%, which is high for Metals and Mining stocks but still below the low risk savings rate.
Next Steps:
After digging a little deeper into Lundin Mining’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three important factors you should further research: