Yahoo Finance Interested In Canacol Energy Ltd (TSE:CNE)’s Upcoming 1.4% Dividend? You Have 3 Days Left
Canacol Energy Ltd (TSE:CNE) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 30th of March in order to receive the dividend, which the company will pay on the 15th of April.
Canacol Energy's upcoming dividend is CA$0.052 a share, following on from the last 12 months, when the company distributed a total of CA$0.14 per share to shareholders. Looking at the last 12 months of distributions, Canacol Energy has a trailing yield of approximately 5.5% on its current stock price of CA$3.69. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Canacol Energy can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Canacol Energy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Canacol Energy has a low and conservative payout ratio of just 21% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Canacol Energy paid out more free cash flow than it generated - 134%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
While Canacol Energy's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Canacol Energy to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Canacol Energy's earnings have been skyrocketing, up 28% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
This is Canacol Energy's first year of paying a dividend, so it doesn't have much of a history yet to compare to.
Final Takeaway
Is Canacol Energy worth buying for its dividend? We like that Canacol Energy has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. All things considered, we are not particularly enthused about Canacol Energy from a dividend perspective.
While it's tempting to invest in Canacol Energy for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Canacol Energy and you should be aware of these before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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