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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Regis Resources Limited (ASX:RRL) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 30th of August, you won't be eligible to receive this dividend, when it is paid on the 16th of September.
Regis Resources's next dividend payment will be AU$0.08 per share. Last year, in total, the company distributed AU$0.16 to shareholders. Based on the last year's worth of payments, Regis Resources has a trailing yield of 3.2% on the current stock price of A$5.03. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Regis Resources has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Regis Resources
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Regis Resources's payout ratio is modest, at just 50% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 92% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.
Regis Resources paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Regis Resources to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Regis Resources has grown its earnings rapidly, up 44% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.