It looks like Pan American Silver Corp. (TSE:PAAS) is about to go ex-dividend in the next 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Pan American Silver investors that purchase the stock on or after the 20th of May will not receive the dividend, which will be paid on the 2nd of June.

The company's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Last year's total dividend payments show that Pan American Silver has a trailing yield of 1.8% on the current share price of CA$31.58. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Pan American Silver paid out a comfortable 47% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

See our latest analysis for Pan American Silver

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.TSX:PAAS Historic Dividend May 15th 2025

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Pan American Silver, with earnings per share up 9.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

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Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Pan American Silver has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. Pan American Silver is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Should investors buy Pan American Silver for the upcoming dividend? Earnings per share growth has been growing somewhat, and Pan American Silver is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Pan American Silver is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Pan American Silver is facing. For example - Pan American Silver has 1 warning sign we think you should be aware of.

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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.

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