Read This Before Considering Marathon Oil Corporation (NYSE:MRO) For Its Upcoming US$0.05 Dividend
It looks like Marathon Oil Corporation (NYSE:MRO) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Marathon Oil investors that purchase the stock on or after the 17th of August will not receive the dividend, which will be paid on the 10th of September.
The company's upcoming dividend is US$0.05 a share, following on from the last 12 months, when the company distributed a total of US$0.20 per share to shareholders. Based on the last year's worth of payments, Marathon Oil stock has a trailing yield of around 1.6% on the current share price of $12.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Marathon Oil
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Marathon Oil reported a loss last year, so it's not great to see that it has continued paying a dividend. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 6.8% of its cash flow last year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Marathon Oil 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Marathon Oil has seen its dividend decline 15% per annum on average over the past 10 years, which is not great to see.
Get our latest analysis on Marathon Oil's balance sheet health here.
The Bottom Line
Is Marathon Oil an attractive dividend stock, or better left on the shelf? It's hard to get used to Marathon Oil 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 Marathon Oil from a dividend perspective.
While it's tempting to invest in Marathon Oil for the dividends alone, you should always be mindful of the risks involved. For example, we've found 3 warning signs for Marathon Oil (1 shouldn't be ignored!) that deserve your attention before investing in the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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