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Cleveland-Cliffs Inc. (NYSE:CLF) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 3rd of October in order to receive the dividend, which the company will pay on the 15th of October.
Cleveland-Cliffs's upcoming dividend is US$0.1 a share, following on from the last 12 months, when the company distributed a total of US$0.2 per share to shareholders. Calculating the last year's worth of payments shows that Cleveland-Cliffs has a trailing yield of 3.4% on the current share price of $7.13. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Cleveland-Cliffs has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Cleveland-Cliffs
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. Cleveland-Cliffs is paying out just 4.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Cleveland-Cliffs'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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Cleveland-Cliffs's 11% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cleveland-Cliffs's dividend payments per share have declined at 3.7% per year on average over the past ten years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.