How many of today’s dividend stocks will still offer an attractive dividend in 15 years’ time? One company which I think could have a fighting chance of maintaining its dividend over this period is Egypt-based gold producer Centamin (LSE: CEY).
The firm’s Sukari gold mine reached full production in 2014. Last year, the company reported gold reserves of 8m ounces at Sukari. At the current production rate of about 500,000 ounces each year, that could support 20 years’ production. Even taking a more cautious view, 15 years seems a safe estimate to me.
I think it’s fair to view this company as a production business which will continue to return a substantial share of its profits to shareholders.
Out of favour – the right time to buy?
Gold is out of favour at the moment. The price of the yellow metal has fallen by 11% from $1,350/oz to $1,195/oz so far this year. Gold miners’ share prices have dipped too.
Centamin’s share price has fallen further than most. The stock is down by nearly 40% so far this year, mainly because management cut its guidance for 2018 production in May. I share my colleague Graham Chester’s view that this is a short-term blip.
I’m more interested to note that the shares now trade on a trailing price/free cash flow ratio of about six. That’s very cheap, in my view, especially when it’s accompanied by a net cash balance of $282m. This cash pile covers roughly 20% of the group’s market cap, so it provides good support for the dividend.
Although the company is still involved in two ongoing court cases in Egypt, my view is that these are now unlikely to cause major problems. Indeed, I think the shares are priced to buy, on a forecast P/E of 13.3 and with a prospective yield of 5.1%.
A turnaround opportunity?
Things haven’t gone so well for shareholders in African miner Petra Diamonds Limited (LSE: PDL).
Earlier this year, this £317m firm was forced to raise $178m (£136m) from shareholders in a rights issue to help reduce its debts to “a more sustainable level.” Today’s full-year results suggest to me that the outlook remains uncertain.
The good news was that group revenue rose by 25% to $495m last year. Management’s preferred measure of profit, adjusted earnings before interest, tax, depreciation and amortisation (EBTIDA) rose by 37% to $195. This was supported by adjusted operating cash flow of $157m, up by 7% from $147m last year. Meanwhile, last year’s rights issue helped reduce net debt from $555m to $521m.
The bad news was that a range of exceptional costs and political problems pushed the group to an overall loss after tax of $203m. Free cash flow was also negative.
Although costs, such as mine closure charges, were clearly one-offs, the company still has political problems in Tanzania. The authorities there have seized an export shipment and are in dispute with the firm over VAT charges.
Chief executive Johan Dippenaar says that the company remains on track to generate free cash flow and reduce debt to sustainable levels by the end of June 2020.
However, Dippenaar has announced plans to leave the firm today. My view is that there are still a number of risks here that most investors will struggle to understand. For that reason, I plan to continue avoiding this stock, despite the firm’s modest 2019 forecast P/E of 6.3.
