Newcrest Mining Limited (ASX:NCM) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy Newcrest Mining Limited (ASX:NCM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Newcrest Mining investors that purchase the stock on or after the 26th of August will not receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be US$0.40 per share. Last year, in total, the company distributed US$0.55 to shareholders. Based on the last year's worth of payments, Newcrest Mining stock has a trailing yield of around 3.1% on the current share price of A$24.71. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Newcrest Mining

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. Newcrest Mining is paying out just 5.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Newcrest Mining generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Newcrest Mining has grown its earnings rapidly, up 27% a year for the past five years. Newcrest Mining looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Newcrest Mining has lifted its dividend by approximately 6.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Newcrest Mining? Newcrest Mining has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Newcrest Mining is facing. Our analysis shows 2 warning signs for Newcrest Mining that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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