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Warrior Met Coal, Inc. (NYSE:HCC) has announced that it will pay a dividend of $0.08 per share on the 12th of November. The dividend yield is 1.3% based on this payment, which is a little bit low compared to the other companies in the industry.
Check out our latest analysis for Warrior Met Coal
Warrior Met Coal's Payment Could Potentially Have Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. However, Warrior Met Coal's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
EPS is set to fall by 13.5% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 13%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Warrior Met Coal's Dividend Has Lacked Consistency
Warrior Met Coal has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 7 years was $0.20 in 2017, and the most recent fiscal year payment was $0.82. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Dividend Growth Is Doubtful
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. Warrior Met Coal has seen earnings per share falling at 8.7% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
Our Thoughts On Warrior Met Coal's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Warrior Met Coal's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Warrior Met Coal that investors need to be conscious of moving forward. Is Warrior Met Coal 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.