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Devon Energy Corporation (NYSE:DVN) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 13th of May, you won't be eligible to receive this dividend, when it is paid on the 30th of June.
Devon Energy's next dividend payment will be US$0.34 per share. Last year, in total, the company distributed US$0.44 to shareholders. Last year's total dividend payments show that Devon Energy has a trailing yield of 1.7% on the current share price of $26.22. If you buy this business for its dividend, you should have an idea of whether Devon Energy's dividend is reliable and sustainable. So we need to investigate whether Devon Energy 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. Devon Energy's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range for most companies.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Devon Energy reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Devon Energy's dividend payments per share have declined at 3.7% per year on average over the past 10 years, which is uninspiring.
Remember, you can always get a snapshot of Devon Energy's financial health, by checking our visualisation of its financial health, here.
From a dividend perspective, should investors buy or avoid Devon Energy? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. All things considered, we are not particularly enthused about Devon Energy from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Devon Energy, you should know about the other risks facing this business. Our analysis shows 4 warning signs for Devon Energy that we strongly recommend you have a look at before investing in the company.
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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