Northam Platinum Holdings Limited (JSE:NPH) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy Northam Platinum Holdings Limited (JSE:NPH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Accordingly, Northam Platinum Holdings investors that purchase the stock on or after the 16th of September will not receive the dividend, which will be paid on the 21st of September.

The company's next dividend payment will be R010.00 per share, on the back of last year when the company paid a total of R20.00 to shareholders. Based on the last year's worth of payments, Northam Platinum Holdings has a trailing yield of 6.3% on the current stock price of R0319.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Northam Platinum Holdings paying out a modest 48% of its earnings. A useful secondary check can be to evaluate whether Northam Platinum Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past year.

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.

Check out our latest analysis for Northam Platinum Holdings

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Northam Platinum Holdings, with earnings per share up 5.6% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Northam Platinum Holdings has delivered an average of 49% per year annual increase in its dividend, based on the past three 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Northam Platinum Holdings? Earnings per share have been growing moderately, and Northam Platinum Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Northam Platinum Holdings is halfway there. There's a lot to like about Northam Platinum Holdings, and we would prioritise taking a closer look at it.

While it's tempting to invest in Northam Platinum Holdings for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Northam Platinum Holdings that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking 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.