Can Glencore (LON:GLEN) afford its dividend payment?

Dividend cuts happen all the time. This is why doing some due diligence on your portfolio and making sure your holdings can still afford their dividend payments is time well spent. 

In the UK, 2018 was a terrific year for dividends but a bad one for share prices, pushing yields up. Good for income investors on the face of it, but stock market declines can signal a deterioration in economic conditions. Should this prove to be the case, dividend cuts are never far behind...

One of the quickest ways to kick the tyres on your current dividend generators is to check the dividend cover (earnings per share divided by dividend per share). Dividend cover is the inverse of the dividend payout ratio. Dividend cover of two times or above is strong. Anything below one and a half times - as is the case for Glencore (LON:GLEN) - should be stirring us to investigate in more detail.

Calculating Glencore’s dividend cover ratio 

A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It happens all the time. With that in mind, let’s take a look at Glencore’s (LON:GLEN) dividend cover.

We can get all the information we need to see if Glencore has an adequate level of dividend cover from the group’s StockReport. The group’s trailing twelve-month earnings per share is 24p and its trailing twelve-month dividend per share is 20p. 

Divide the former by the latter and we get a trailing twelve-month dividend cover for Glencore of 1.20. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety.

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.