Income Investors Should Know That Paramount Resources Ltd. (TSE:POU) Goes Ex-Dividend Soon
Paramount Resources Ltd. (TSE:POU) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Paramount Resources' shares before the 14th of December to receive the dividend, which will be paid on the 29th of December.
The company's next dividend payment will be CA$0.13 per share, and in the last 12 months, the company paid a total of CA$1.50 per share. Based on the last year's worth of payments, Paramount Resources stock has a trailing yield of around 5.7% on the current share price of CA$26.12. 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 check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Paramount Resources
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. Paramount Resources paid out a comfortable 34% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 80% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Paramount Resources earnings per share are up 7.9% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Paramount Resources has delivered 150% dividend growth per year on average over the past two years. 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
Has Paramount Resources got what it takes to maintain its dividend payments? Earnings per share have been growing at a steady rate, and Paramount Resources paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, it's hard to get excited about Paramount Resources from a dividend perspective.
While it's tempting to invest in Paramount Resources for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Paramount Resources that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
