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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Franco-Nevada Corporation (TSE:FNV) is about to trade ex-dividend in the next two days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Franco-Nevada's shares on or after the 13th of March, you won't be eligible to receive the dividend, when it is paid on the 27th of March.
The company's next dividend payment will be US$0.38 per share, and in the last 12 months, the company paid a total of US$1.44 per share. Based on the last year's worth of payments, Franco-Nevada has a trailing yield of 1.1% on the current stock price of CA$205.77. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Franco-Nevada
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Franco-Nevada lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Franco-Nevada was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.