It looks like Wheaton Precious Metals Corp. (TSE:WPM) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Wheaton Precious Metals’ shares on or after the 2nd of April will not receive the dividend, which will be paid on the 15th of April.
The company’s next dividend payment will be US$0.155 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Last year’s total dividend payments show that Wheaton Precious Metals has a trailing yield of 1.3% on the current share price of CA$63.80. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Wheaton Precious Metals
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Wheaton Precious Metals paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out an unsustainably high 354% of its free cash flow as dividends over the past 12 months, which is worrying. It’s pretty hard to pay out more than you earn, so we wonder how Wheaton Precious Metals intends to continue funding this dividend, or if it could be forced to cut the payment.
Wheaton Precious Metals 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 Wheaton Precious Metals 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?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it’s a relief to see Wheaton Precious Metals earnings per share are up 4.2% per annum over the last five years. Earnings have been growing somewhat, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Wheaton Precious Metals has lifted its dividend by approximately 3.3% 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.
To Sum It Up
From a dividend perspective, should investors buy or avoid Wheaton Precious Metals? Earnings per share have grown somewhat, although Wheaton Precious Metals paid out over half its profits and the dividend was not well covered by free cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
Ever wonder what the future holds for Wheaton Precious Metals? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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Find out whether Wheaton Precious Metals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.