Nickel Mines Limited (ASX:NIC) announced that it will pay a dividend of AUD 0.02 per share on February 10. Including this payment, the dividend yield on the stock will be 2.8%, representing a modest increase in shareholder return.
While the dividend yield is important for income investors, it’s also important to take into account any large changes in share price, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Nickel Mines’ share price is up 37% in the last 3 months, which is good for shareholders and may also explain a drop in dividend yield.
Check out our latest analysis for Nickel Mines
Nickel Mines payment has strong revenue coverage
While yield is important, another factor to consider regarding a company’s dividend is whether current payout levels are achievable. Prior to this announcement, Nickel Mines’ dividend was comfortably covered by both cash flow and earnings. This indicates that a fairly large proportion of profits are reinvested in the business.
Next year is expected to see EPS increase by 59.7%. Assuming the dividend continues on recent trends, we think the payout ratio could be 42% by next year, which is in a fairly sustainable range.
Nickel Mines does not have a long payment history
The company hasn’t paid a dividend for a very long time, so we can’t really judge the stability of the dividend. That doesn’t mean the company can’t pay a good dividend, just that we want to wait until it can prove itself.
The dividend should increase
Some investors will be eager to buy some of the company’s stock based on its dividend history. Nickel Mines has impressed us by increasing EPS by 56% per year over the past five years. The company’s earnings per share have grown rapidly in recent years, and it has a good balance between reinvestment and paying dividends to shareholders, so we believe Nickel Mines could prove to be a strong dividend payer.
Nickel Mines looks like a big dividend stock
Overall, we think it’s a great income investment and we think keeping the dividend this year may have been a prudent choice. The company is easily earning enough to cover its dividend payments and it’s good to see that income translate into cash flow. All of these factors taken into account, we believe this has strong potential as a dividend-paying stock.
Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. Meanwhile, despite the importance of dividend payouts, these are not the only factors our readers should be aware of when evaluating a company. For example, we chose 3 warning signs for nickel mines that investors should be aware of before committing capital to this security. If you are a dividend investor, you can also consult our curated list of high performing dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.