Yahoo Finance Chesapeake Energy Corporation (NASDAQ:CHK) Passed Our Checks, And It's About To Pay A US$1.18 Dividend
It looks like Chesapeake Energy Corporation (NASDAQ:CHK) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Chesapeake Energy's shares on or after the 17th of May, you won't be eligible to receive the dividend, when it is paid on the 6th of June.
The company's upcoming dividend is US$1.18 a share, following on from the last 12 months, when the company distributed a total of US$7.95 per share to shareholders. Looking at the last 12 months of distributions, Chesapeake Energy has a trailing yield of approximately 10.0% on its current stock price of $79.78. If you buy this business for its dividend, you should have an idea of whether Chesapeake Energy's dividend is reliable and sustainable. So we need to investigate whether Chesapeake Energy can afford its dividend, and if the dividend could grow.
View our latest analysis for Chesapeake Energy
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. Chesapeake Energy has a low and conservative payout ratio of just 17% of its income after tax. 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. The good news is it paid out just 10% of its free cash flow in the last year.
It's positive to see that Chesapeake Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Chesapeake Energy, with earnings per share up 4.8% on average over the last five years. Chesapeake Energy is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last two years, Chesapeake Energy has lifted its dividend by approximately 140% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Chesapeake Energy? Earnings per share have been growing moderately, and Chesapeake Energy is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Chesapeake Energy is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Chesapeake Energy, and we would prioritise taking a closer look at it.
So while Chesapeake Energy looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 4 warning signs for Chesapeake Energy (2 can't be ignored!) that deserve your attention before investing in the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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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