African Rainbow Minerals Limited (JSE:ARI) Will Pay A R07.00 Dividend In Four Days
It looks like African Rainbow Minerals Limited (JSE:ARI) is about to go ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a 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. This means that investors who purchase African Rainbow Minerals' shares on or after the 7th of October will not receive the dividend, which will be paid on the 12th of October.
The company's next dividend payment will be R07.00 per share. Last year, in total, the company distributed R12.00 to shareholders. Looking at the last 12 months of distributions, African Rainbow Minerals has a trailing yield of approximately 7.7% on its current stock price of R0155.11. If you buy this business for its dividend, you should have an idea of whether African Rainbow Minerals's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. African Rainbow Minerals paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. 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. Fortunately, it paid out only 38% of its free cash flow in the past year.
It's positive to see that African Rainbow Minerals'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.
See our latest analysis for African Rainbow Minerals
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see African Rainbow Minerals's earnings per share have dropped 20% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. African Rainbow Minerals has delivered 13% dividend growth per year on average over the past 10 years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
Has African Rainbow Minerals got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of African Rainbow Minerals's dividend merits.
With that being said, if dividends aren't your biggest concern with African Rainbow Minerals, you should know about the other risks facing this business. Every company has risks, and we've spotted 1 warning sign for African Rainbow Minerals you should know about.
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.