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It looks like ConocoPhillips (NYSE:COP) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase ConocoPhillips' shares before the 27th of October in order to receive the dividend, which the company will pay on the 1st of December.
The company's next dividend payment will be US$0.46 per share, and in the last 12 months, the company paid a total of US$1.72 per share. Looking at the last 12 months of distributions, ConocoPhillips has a trailing yield of approximately 2.5% on its current stock price of $74.59. If you buy this business for its dividend, you should have an idea of whether ConocoPhillips's dividend is reliable and sustainable. So we need to investigate whether ConocoPhillips can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. ConocoPhillips paid out 111% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Fortunately, it paid out only 50% of its free cash flow in the past year.
It's good to see that while ConocoPhillips's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see ConocoPhillips has grown its earnings rapidly, up 36% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ConocoPhillips's dividend payments per share have declined at 3.5% per year on average over the past 10 years, which is uninspiring. ConocoPhillips 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 ConocoPhillips for the upcoming dividend? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with ConocoPhillips's paying out such a high percentage of its profit. In summary, it's hard to get excited about ConocoPhillips from a dividend perspective.
In light of that, while ConocoPhillips has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 6 warning signs with ConocoPhillips and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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