Silver Wheaton's Dividend Is Safe

As a dividend investor, it pays to follow how much of a company's money goes toward funding its dividend. A nice yield now won't matter much if the company can't keep making those payments going forward.

Here, we'll highlight a given company and its closest competitors to see just how safe their dividends are, with a little help from three crucial tools:

  • The interest coverage ratio, or earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than one means that the company is not bringing in enough money to cover its interest expenses.
  • The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.
  • The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don't always paint a complete picture of a business's health. The FCF payout ratio measures the percent of free cash flow devoted toward paying the dividend. Again, a ratio greater than 80% could be a red flag.

Let's examine Silver Wheaton (NYSE: SLW  ) and three of its peers.

Company

Yield

Interest Coverage

EPS Payout Ratio

FCF Payout Ratio

Silver Wheaton

0.4%

NM

2.9%

9.5%

Yamana Gold (NYSE: AUY  )

0%

21.1

15.9%

49.4%

Agnico-Eagle Mines (NYSE: AEM  )

1.0%

8.8

7.7%

NM

Goldcorp (NYSE: GG  )

0.9%

31.1

9.7%

41.4%

Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful; Silver Wheaton had negligible interest expense and Agnico-Eagle had negative FCF over the relevant period.

Silver Wheaton has barely any debt so its interest coverage is negligible. Since its EPS payout ratio and FCF payout ratio are below 10%, you shouldn't have to worry that Silver Wheaton will need to cut its dividend anytime soon.

Another tool for better investing
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Read/Post Comments (3) | Recommend This Article (6)

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  • Report this Comment On June 16, 2011, at 3:22 PM, speedybure wrote:

    What's up with your comparisons? Why not compare them to either silver companies w/dividend i.e silvercorp orother royalty companies, Franco or Royal gold.

  • Report this Comment On June 18, 2011, at 7:01 PM, SilverDoctors wrote:

    the dividend's safe until the government nationalizes silver wheaton! physical silver is the only way to go!

  • Report this Comment On June 26, 2011, at 11:30 AM, alex61761 wrote:

    where can you find these ratios? or do you have to calculate them? and if they are in 10k sec filings, where in the filings can i find them, under what section?

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