A-Mark Precious Metals, Inc. (NASDAQ:AMRK) has announced that it will pay a dividend of $0.20 per share on the 29th of January. Based on this payment, the dividend yield on the company’s stock will be 2.8%, which is an attractive boost to shareholder returns.
A-Mark Precious Metals’ Earnings Easily Cover The Distributions
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Based on the last payment, A-Mark Precious Metals was earning enough to cover the dividend, but free cash flows weren’t positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to expand by 1.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.
A-Mark Precious Metals’ Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was $0.10, compared to the most recent full-year payment of $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. A-Mark Precious Metals has impressed us by growing EPS at 41% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we’ve come across 4 warning signs for A-Mark Precious Metals you should be aware of, and 2 of them can’t be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield 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.