29-03-2025
African Rainbow Minerals' (JSE:ARI) Dividend Is Being Reduced To ZAR4.50
The board of African Rainbow Minerals Limited (JSE:ARI) has announced it will be reducing its dividend by 25% from last year's payment of ZAR6.00 on the 7th of April, with shareholders receiving ZAR4.50. The dividend yield of 9.9% is still a nice boost to shareholder returns, despite the cut.
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We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. At the time of the last dividend payment, African Rainbow Minerals was paying out a very large proportion of what it was earning and 281% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
Over the next year, EPS is forecast to expand by 12.3%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 82% which is a bit high but can definitely be sustainable.
View our latest analysis for African Rainbow Minerals
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ZAR6.00 in 2015 to the most recent total annual payment of ZAR15.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though African Rainbow Minerals' EPS has declined at around 5.6% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think African Rainbow Minerals is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for African Rainbow Minerals that investors should know about before committing capital to this stock. Is African Rainbow Minerals not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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