The board of Sandstorm Gold Ltd. (TSE:SSL) has announced that it will pay a dividend of $0.02 per share on the 26th of January. Including this payment, the dividend yield on the stock will be 1.1%, which is a modest boost for shareholders' returns.

Check out our latest analysis for Sandstorm Gold

Sandstorm Gold Is Paying Out More Than It Is Earning

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Sandstorm Gold's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand by 55.2%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 101% over the next year. TSX:SSL Historic Dividend December 22nd 2023

Sandstorm Gold Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2021, the dividend has gone from $0.0613 total annually to $0.0577. The dividend has shrunk at around 3.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Sandstorm Gold's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Sandstorm Gold has grown earnings per share at 20% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

Our Thoughts On Sandstorm Gold's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Sandstorm Gold that you should be aware of before investing. Is Sandstorm Gold not quite the opportunity you were looking for? Why not check out our selection of top 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.