SM Energy (NYSE:SM) Is Paying Out A Larger Dividend Than Last Year
SM Energy Company (NYSE:SM) has announced that it will be increasing its periodic dividend on the 5th of February to $0.18, which will be 20% higher than last year's comparable payment amount of $0.15. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.
See our latest analysis for SM Energy
SM Energy's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. However, SM Energy's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 3.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 10%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
SM Energy Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.10 in 2014, and the most recent fiscal year payment was $0.60. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that SM Energy has grown earnings per share at 36% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like SM Energy's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for SM Energy that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
