Is the 16% dividend yield on New Hope shares a trap?

Is this coal miner going to continue paying big dividends?

| More on:
A business woman looks unhappy while she flies a red flag at her laptop.

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

New Hope Corporation Ltd (ASX: NHC) shares have provided investors with some big dividends recently.

For example, over the last 12 months, the coal miner has paid out dividends per share of 96 cents.

Based on the current New Hope share price of $5.94, this equates to a whopping 16% trailing dividend yield.

To put that into context, a $10,000 investment in its shares would have yielded $1,600 in dividends.

But when something looks too good to be true, it often is. Is that the case with New Hope shares? Is it actually a dividend trap?

Are New Hope shares a trap?

Unfortunately, if analysts at Goldman Sachs are on the money with their forecasts, investors could be looking at major dividend cuts from New Hope in the near term.

For example, its analysts are expecting a 23 cents per share final dividend from the coal miner when it releases its FY 2023 results in the coming weeks. This is down 59% on the 56 cents per share final dividend New Hope paid out last year and will bring its full-year dividend to 63 cents per share.

But the cuts won't stop there according to Goldman.

More cuts ahead

The broker has pencilled in a 33 cents per share dividend for FY 2024, which implies a 58% cut on its estimate for the current financial year.

Based on where New Hope shares are currently trading, this will mean a fully franked 5.5% dividend yield. And while this is still very attractive, it pales in comparison to its trailing dividend yield.

In addition, it is worth highlighting that Goldman Sachs has a sell rating and a $3.30 price target on New Hope's shares. This suggests that its shares could fall approximately 45% from current levels.

All in all, it's fair to say that this coal miner currently has the hallmarks of being a dividend trap.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Happy woman and man looking at an iPad.
Dividend Investing

Forget term deposits! I'd buy these two ASX 200 shares instead

Term deposits aren’t as attractive to me these days.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Dividend Investing

3 ASX dividend shares to buy with $7,000 and hold for a decade

Let's see why analysts think these shares would be great additions to an income portfolio.

Read more »

Woman relaxing on her phone on her couch, symbolising passive income.
Dividend Investing

Own IVV ETF or other iShares ASX ETFs? It's dividend payday for you!

Thinking TGIF? There's a better reason to celebrate. It's dividend payday for iShares investors!

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Bank Shares

This is the ASX bank stock with the largest dividend yield right now

Looking to ASX bank stocks for dividend income right now?

Read more »

A group of businesspeople clapping.
Dividend Investing

2 of the best ASX dividend shares to buy now

Bell Potter has good things to say about these income options.

Read more »

woman on phone
Dividend Investing

Is the Telstra share price a buy for passive income?

These are the two main factors I’d look at.

Read more »

Smiling woman with her head and arm on a desk holding $100 notes out, symbolising dividends.
Dividend Investing

2 cheap ASX dividend stocks to buy before it's too late

Analysts think these shares are cheap buys. Let's see what they are saying about them.

Read more »

Young couple at the counter of a hardware store.
Dividend Investing

Here's how often Wesfarmers stock increases its ASX dividend

Wesfarmers has quietly been delivering for income investors...

Read more »