- Oops!Something went wrong.Please try again later.
Cabot Oil & Gas Corporation (NYSE:COG) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 20th of January to receive the dividend, which will be paid on the 4th of February.
Cabot Oil & Gas's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Last year's total dividend payments show that Cabot Oil & Gas has a trailing yield of 2.1% on the current share price of $19.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Cabot Oil & Gas is paying out an acceptable 74% of its profit, a common payout level among most companies. 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. Over the past year it paid out 184% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Cabot Oil & Gas'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 Cabot Oil & Gas to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Cabot Oil & Gas's earnings per share have risen 17% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Cabot Oil & Gas has increased its dividend at approximately 30% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is Cabot Oil & Gas worth buying for its dividend? The best dividend stocks typically boast a long history of growing earnings per share (EPS) via a combination of earnings growth and buybacks. That's why we're glad to see Cabot Oil & Gas growing its EPS, buying back stock and paying out a reasonable percentage of its earnings as dividends. However, we note with some concern that it paid out 184% of its free cash flow last year, which is uncomfortably high and makes us wonder why the company chose to spend even more cash on buybacks. In summary, while it has some positive characteristics, we're not inclined to race out and buy Cabot Oil & Gas today.
However if you're still interested in Cabot Oil & Gas as a potential investment, you should definitely consider some of the risks involved with Cabot Oil & Gas. To help with this, we've discovered 3 warning signs for Cabot Oil & Gas that you should be aware of before investing in their shares.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.