The board of U.S. Global Investors, Inc. (NASDAQ:GROW) has announced that it will pay a dividend on the 25th of November, with investors receiving $0.0075 per share. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.

See our latest analysis for U.S. Global Investors

Estimates Indicate U.S. Global Investors' Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS could expand by 1.7% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 97%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was $0.06, compared to the most recent full-year payment of $0.09. This means that it has been growing its distributions at 4.1% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Although it's important to note that U.S. Global Investors' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The earnings growth is anaemic, and the company is paying out 96% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

U.S. Global Investors' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for U.S. Global Investors (of which 1 is a bit unpleasant!) you should know about. Is U.S. Global Investors not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.