Interested In Northern Star Resources' (ASX:NST) Upcoming AU$0.30 Dividend? You Have Four Days Left
Northern Star Resources Limited (ASX:NST) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days 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 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. Therefore, if you purchase Northern Star Resources' shares on or after the 9th of September, you won't be eligible to receive the dividend, when it is paid on the 15th of October.
The company's next dividend payment will be AU$0.30 per share, and in the last 12 months, the company paid a total of AU$0.55 per share. Last year's total dividend payments show that Northern Star Resources has a trailing yield of 2.4% on the current share price of AU$23.17. 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 investigate whether Northern Star Resources can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Northern Star Resources paid out a comfortable 47% of its profit last year. 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. Northern Star Resources paid out more free cash flow than it generated - 162%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Northern Star Resources paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Northern Star Resources's ability to maintain its dividend.
View our latest analysis for Northern Star Resources
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Northern Star Resources's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. 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. Northern Star Resources has delivered an average of 21% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
From a dividend perspective, should investors buy or avoid Northern Star Resources? Earnings per share have been effectively flat over this time, and Northern Star Resources's paying out less than half its profits and 162% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Ever wonder what the future holds for Northern Star Resources? See what the 15 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.