Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Razor Energy Corp. (CVE:RZE) is about to trade ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 13th of September will not receive the dividend, which will be paid on the 30th of September.
Razor Energy's next dividend payment will be CA$0.013 per share, and in the last 12 months, the company paid a total of CA$0.15 per share. Calculating the last year's worth of payments shows that Razor Energy has a trailing yield of 9.3% on the current share price of CA$1.62. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Razor Energy lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Razor Energy didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 17% of its free cash flow last year.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Razor Energy was unprofitable last year, and sadly its loss per share worsened by 514% on the previous year.
Given that Razor Energy has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Remember, you can always get a snapshot of Razor Energy's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is Razor Energy an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Curious about whether Razor Energy has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.