CVR Energy, Inc. (NYSE:CVI) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 2nd of August, you won't be eligible to receive this dividend, when it is paid on the 12th of August.
CVR Energy's next dividend payment will be US$0.75 per share, on the back of last year when the company paid a total of US$3.00 to shareholders. Calculating the last year's worth of payments shows that CVR Energy has a trailing yield of 5.4% on the current share price of $55.17. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CVR Energy is paying out an acceptable 74% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 46% of its free cash flow in the past 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?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that CVR Energy's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CVR Energy has delivered an average of 38% per year annual increase in its dividend, based on the past 7 years of dividend payments.
Should investors buy CVR Energy for the upcoming dividend? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, CVR Energy doesn't stand out from a dividend perspective. In summary, while it has some positive characteristics, we're not inclined to race out and buy CVR Energy today.
Ever wonder what the future holds for CVR Energy? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.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.