Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Seplat Petroleum Development Company Plc (LON:SEPL) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 30th of April to receive the dividend, which will be paid on the 28th of May.
Seplat Petroleum Development's upcoming dividend is US$0.05 a share, following on from the last 12 months, when the company distributed a total of US$0.10 per share to shareholders. Looking at the last 12 months of distributions, Seplat Petroleum Development has a trailing yield of approximately 9.0% on its current stock price of £0.8. 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! We need to see whether the dividend is covered by earnings and if it's 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. Seplat Petroleum Development 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Seplat Petroleum Development 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Seplat Petroleum Development has seen its dividend decline 2.6% per annum on average over the past seven years, which is not great to see.
We update our analysis on Seplat Petroleum Development every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Seplat Petroleum Development worth buying for its dividend? It's hard to get used to Seplat Petroleum Development paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall, it's hard to get excited about Seplat Petroleum Development from a dividend perspective.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Be aware that Seplat Petroleum Development is showing 3 warning signs in our investment analysis, and 1 of those is significant...
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.
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. 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.
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