Readers hoping to buy Range Resources Corporation (NYSE:RRC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Range Resources' shares before the 14th of December in order to receive the dividend, which the company will pay on the 29th of December.
The company's upcoming dividend is US$0.08 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Looking at the last 12 months of distributions, Range Resources has a trailing yield of approximately 1.1% on its current stock price of $29.7. 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 Range Resources 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. Range Resources is paying out just 5.7% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Range Resources generated enough free cash flow to afford its dividend. Luckily it paid out just 9.6% of its free cash flow last year.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Range Resources's earnings have been skyrocketing, up 33% per annum for the past five years. Range Resources looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Range Resources has lifted its dividend by approximately 7.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid Range Resources? Range Resources has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Range Resources looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Range Resources has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 3 warning signs for Range Resources (1 is potentially serious!) that deserve your attention before investing in the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.