Only Four Days Left To Cash In On PHX Energy Services' (TSE:PHX) Dividend
PHX Energy Services Corp. (TSE:PHX) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase PHX Energy Services' shares before the 27th of March in order to be eligible for the dividend, which will be paid on the 15th of April.
The company's upcoming dividend is CA$0.20 a share, following on from the last 12 months, when the company distributed a total of CA$0.80 per share to shareholders. Based on the last year's worth of payments, PHX Energy Services has a trailing yield of 8.7% on the current stock price of CA$9.24. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether PHX Energy Services can afford its dividend, and if the dividend could grow.
Check out our latest analysis for PHX Energy Services
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. Fortunately PHX Energy Services's payout ratio is modest, at just 33% of profit. 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. The company paid out 97% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While PHX Energy Services's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were PHX Energy Services to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see PHX Energy Services has grown its earnings rapidly, up 77% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, PHX Energy Services has lifted its dividend by approximately 1.1% a year on average. Earnings per share have been growing much quicker than dividends, potentially because PHX Energy Services is keeping back more of its profits to grow the business.
To Sum It Up
Has PHX Energy Services got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
While it's tempting to invest in PHX Energy Services for the dividends alone, you should always be mindful of the risks involved. Be aware that PHX Energy Services is showing 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
