Genel Energy plc (LON:GENL) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 12th of December will not receive this dividend, which will be paid on the 8th of January.
Genel Energy's upcoming dividend is UK£0.05 a share, following on from the last 12 months, when the company distributed a total of UK£0.10 per share to shareholders. Last year's total dividend payments show that Genel Energy has a trailing yield of 4.0% on the current share price of £1.914. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Genel Energy can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Genel 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Genel 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. The good news is it paid out just 15% of its free cash flow in the last year.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Genel 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.
Given that Genel Energy has only been paying a dividend for a year, there's not much of a past history to draw insight from.
We update our analysis on Genel Energy every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Is Genel Energy worth buying for its dividend? 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." All things considered, we are not particularly enthused about Genel Energy from a dividend perspective.
Wondering what the future holds for Genel Energy? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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