It looks like Cimarex Energy Co. (NYSE:XEC) is about to go ex-dividend in the next 3 days. You can purchase shares before the 14th of May in order to receive the dividend, which the company will pay on the 1st of June.
Cimarex Energy's next dividend payment will be US$0.22 per share, and in the last 12 months, the company paid a total of US$0.88 per share. Looking at the last 12 months of distributions, Cimarex Energy has a trailing yield of approximately 3.7% on its current stock price of $24.07. 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! As a result, readers should always check whether Cimarex Energy has been able to grow its dividends, or if the dividend might be cut.
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. Cimarex Energy's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Cimarex Energy was unprofitable last year, but at least the general trend suggests its earnings have 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, Cimarex Energy has lifted its dividend by approximately 14% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
We update our analysis on Cimarex Energy every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Should investors buy Cimarex Energy for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Cimarex Energy's dividend merits.
However if you're still interested in Cimarex Energy as a potential investment, you should definitely consider some of the risks involved with Cimarex Energy. For example - Cimarex Energy has 2 warning signs we think you should be aware of.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.