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Here's Why We're Wary Of Buying PBF Energy Inc.'s (NYSE:PBF) For Its Upcoming Dividend

Simply Wall St

It looks like PBF Energy Inc. (NYSE:PBF) is about to go ex-dividend in the next 2 days. You will need to purchase shares before the 13th of November to receive the dividend, which will be paid on the 26th of November.

PBF Energy's next dividend payment will be US$0.3 per share, and in the last 12 months, the company paid a total of US$1.2 per share. Last year's total dividend payments show that PBF Energy has a trailing yield of 3.7% on the current share price of $32.81. If you buy this business for its dividend, you should have an idea of whether PBF Energy's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for PBF Energy

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. PBF Energy paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If PBF 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. PBF Energy paid out more free cash flow than it generated - 124%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:PBF Historical Dividend Yield, November 10th 2019

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. PBF 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. PBF Energy's dividend payments are effectively flat on where they were seven years ago.

Get our latest analysis on PBF Energy's balance sheet health here.

Final Takeaway

Has PBF Energy got what it takes to maintain its dividend payments? It's hard to get used to PBF Energy paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not that we think PBF Energy is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Ever wonder what the future holds for PBF Energy? See what the ten analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.