The board of Centerra Gold Inc. (TSE:CG) has announced that it will pay a dividend of $0.07 per share on the 29th of November. This means the annual payment is 3.3% of the current stock price, which is above the average for the industry.

View our latest analysis for Centerra Gold

Centerra Gold's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Centerra Gold isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This is quite a strong warning sign that the dividend may not be sustainable.

Looking forward, earnings per share is forecast to rise by 145.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 75%, which is in the range that makes us comfortable with the sustainability of the dividend. historic-dividend

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was $0.157, compared to the most recent full-year payment of $0.202. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Come By

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 Centerra Gold's EPS has declined at around 9.4% 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. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.



Centerra Gold's Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Centerra Gold make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Centerra Gold that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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