Yahoo Finance Read This Before Considering Chesapeake Energy Corporation (NASDAQ:CHK) For Its Upcoming US$2.34 Dividend
Chesapeake Energy Corporation (NASDAQ:CHK) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Chesapeake Energy's shares on or after the 18th of May, you won't be eligible to receive the dividend, when it is paid on the 2nd of June.
The company's upcoming dividend is US$2.34 a share, following on from the last 12 months, when the company distributed a total of US$7.07 per share to shareholders. Looking at the last 12 months of distributions, Chesapeake Energy has a trailing yield of approximately 9.7% on its current stock price of $85.89. If you buy this business for its dividend, you should have an idea of whether Chesapeake Energy's dividend is reliable and sustainable. As a result, readers should always check whether Chesapeake Energy has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Chesapeake Energy
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Chesapeake Energy reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Chesapeake Energy didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 25% of its free cash flow in the last year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Chesapeake Energy was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Unfortunately Chesapeake Energy has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
Remember, you can always get a snapshot of Chesapeake Energy's financial health, by checking our visualisation of its financial health, here.
Final Takeaway
Has Chesapeake Energy got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. All things considered, we are not particularly enthused about Chesapeake Energy from a dividend perspective.
If you want to look further into Chesapeake Energy, it's worth knowing the risks this business faces. For example - Chesapeake Energy has 2 warning signs we think you should be aware of.
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.
