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Oil Search Limited (ASX:OSH)'s Could Be A Buy For Its Upcoming Dividend

Simply Wall St

Oil Search Limited (ASX:OSH) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 3rd of March in order to receive the dividend, which the company will pay on the 24th of March.

Oil Search's upcoming dividend is AU$0.045 a share, following on from the last 12 months, when the company distributed a total of AU$0.095 per share to shareholders. Last year's total dividend payments show that Oil Search has a trailing yield of 2.5% on the current share price of A$5.68. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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 Oil Search

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Oil Search paid out a comfortable 34% of its profit last year.

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

ASX:OSH Historical Dividend Yield, February 27th 2020

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. With that in mind, we're encouraged by the steady growth at Oil Search, with earnings per share up 3.1% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Oil Search has delivered an average of 9.0% per year annual increase in its dividend, based on the past ten years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Oil Search? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, Oil Search looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

Ever wonder what the future holds for Oil Search? See what the 14 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.

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.

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. Thank you for reading.