Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Cabot Oil & Gas Corporation (NYSE:COG) is about to go ex-dividend in just four days. You can purchase shares before the 12th of August in order to receive the dividend, which the company will pay on the 27th of August.
Cabot Oil & Gas's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Calculating the last year's worth of payments shows that Cabot Oil & Gas has a trailing yield of 2.0% on the current share price of $19.83. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Cabot Oil & Gas can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Cabot Oil & Gas's payout ratio is modest, at just 49% of profit. 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. It paid out 89% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. It's encouraging to see Cabot Oil & Gas has grown its earnings rapidly, up 26% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Cabot Oil & Gas has lifted its dividend by approximately 30% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Cabot Oil & Gas? Earnings per share have grown at a nice rate in recent times and over the last year, Cabot Oil & Gas paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Cabot Oil & Gas is facing. Our analysis shows 2 warning signs for Cabot Oil & Gas and you should be aware of them before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.
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