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 AngloGold Ashanti plc (NYSE:AU) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase AngloGold Ashanti's shares before the 14th of March in order to be eligible for the dividend, which will be paid on the 28th of March.

The company's upcoming dividend is US$0.69 a share, following on from the last 12 months, when the company distributed a total of US$0.91 per share to shareholders. Based on the last year's worth of payments, AngloGold Ashanti stock has a trailing yield of around 2.9% on the current share price of US$31.48. If you buy this business for its dividend, you should have an idea of whether AngloGold Ashanti's dividend is reliable and sustainable. So we need to investigate whether AngloGold Ashanti can afford its dividend, and if the dividend could grow.

View our latest analysis for AngloGold Ashanti

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. Fortunately AngloGold Ashanti's payout ratio is modest, at just 39% of profit. 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. Fortunately, it paid out only 28% of its free cash flow in the past year.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see AngloGold Ashanti's earnings per share have risen 18% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, eight years ago, AngloGold Ashanti has lifted its dividend by approximately 32% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Has AngloGold Ashanti got what it takes to maintain its dividend payments? AngloGold Ashanti has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past eight years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about AngloGold Ashanti, and we would prioritise taking a closer look at it.

In light of that, while AngloGold Ashanti has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for AngloGold Ashanti you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.