Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Crescent Point Energy Corp. (TSE:CPG) is about to trade ex-dividend in the next four 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Crescent Point Energy's shares before the 3rd of November in order to be eligible for the dividend, which will be paid on the 14th of November.
The company's next dividend payment will be CA$0.035 per share, and in the last 12 months, the company paid a total of CA$0.32 per share. Looking at the last 12 months of distributions, Crescent Point Energy has a trailing yield of approximately 3.1% on its current stock price of CA$10.36. If you buy this business for its dividend, you should have an idea of whether Crescent Point Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Crescent Point Energy has a low and conservative payout ratio of just 6.0% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 11% of its free cash flow in the last year.
It's positive to see that Crescent Point 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.
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. It's encouraging to see Crescent Point Energy has grown its earnings rapidly, up 36% a year for the past five years. Crescent Point Energy looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Crescent Point Energy has seen its dividend decline 19% per annum on average over the past 10 years, which is not great to see. Crescent Point Energy 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.
Should investors buy Crescent Point Energy for the upcoming dividend? Crescent Point Energy has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Crescent Point Energy has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 3 warning signs we've spotted with Crescent Point Energy (including 1 which is potentially serious).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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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