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Royal Gold, Inc. (NASDAQ:RGLD) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 3rd of October in order to be eligible for this dividend, which will be paid on the 18th of October.
Royal Gold's next dividend payment will be US$0.3 per share, on the back of last year when the company paid a total of US$1.1 to shareholders. Calculating the last year's worth of payments shows that Royal Gold has a trailing yield of 0.8% on the current share price of $125.59. If you buy this business for its dividend, you should have an idea of whether Royal Gold's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Royal Gold
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Royal Gold paid out 74% of its earnings to investors last year, a normal payout level for most businesses. 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 distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Royal Gold earnings per share are up 8.3% per annum over the last five years. Decent historical earnings per share growth suggests Royal Gold has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Royal Gold has delivered an average of 13% per year annual increase in its dividend, based on the past ten years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.