Teck Resources Limited (TSE:TECK.B) will pay a dividend of CA$0.125 on the 31st of March. This means the annual payment will be 0.9% of the current stock price, which is lower than the industry average.

See our latest analysis for Teck Resources

Estimates Indicate Teck Resources' Dividend Coverage Likely To Improve

Even a low dividend yield can be attractive if it is sustained for years on end. Teck Resources is unprofitable despite paying a dividend, and it is paying out 162% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

Looking forward, earnings per share is forecast to rise by 184.6% over the next year. If the dividend continues on this path, the payout ratio could be 72% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was CA$0.90 in 2015, and the most recent fiscal year payment was CA$0.50. This works out to be a decline of approximately 5.7% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. We are encouraged to see that Teck Resources has grown earnings per share at 26% per year over the past five years. While the company hasn't yet recorded a profit, the growth rates are healthy. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

Teck Resources' 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. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 15 analysts we track are forecasting for Teck Resources for free with public analyst estimates for the company. Is Teck Resources 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.