The board of U.S. Global Investors, Inc. (NASDAQ:GROW) has announced that it will pay a dividend on the 24th of February, with investors receiving $0.0075 per share. This makes the dividend yield 3.7%, which will augment investor returns quite nicely.

Check out our latest analysis for U.S. Global Investors

U.S. Global Investors' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, U.S. Global Investors' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, could fall by 7.4% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 77% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.06 in 2015, and the most recent fiscal year payment was $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.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. U.S. Global Investors has seen earnings per share falling at 7.4% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

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. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for U.S. Global Investors that you should be aware of before investing. 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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