Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Peabody Energy Corporation (NYSE:BTU) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order 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. In other words, investors can purchase Peabody Energy's shares before the 15th of May in order to be eligible for the dividend, which will be paid on the 4th of June.

The company's next dividend payment will be US$0.075 per share, and in the last 12 months, the company paid a total of US$0.30 per share. Looking at the last 12 months of distributions, Peabody Energy has a trailing yield of approximately 2.1% on its current stock price of US$14.29. 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 Peabody Energy can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Peabody Energy paid out just 10% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for Peabody Energy

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.NYSE:BTU Historic Dividend May 10th 2025

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Peabody Energy's earnings have been skyrocketing, up 58% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Peabody Energy looks like a promising growth company.

Story Continues

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Peabody Energy has seen its dividend decline 5.9% per annum on average over the past seven years, which is not great to see. Peabody Energy is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Should investors buy Peabody Energy for the upcoming dividend? Peabody Energy has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past seven years, but the conservative payout ratio makes the current dividend look sustainable. Peabody Energy looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Peabody Energy looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Peabody Energy has 2 warning signs we think you should be aware of.

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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.

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