Is It Smart To Buy ONE Gas, Inc. (NYSE:OGS) Before It Goes Ex-Dividend?
Readers hoping to buy ONE Gas, Inc. (NYSE:OGS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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, ONE Gas investors that purchase the stock on or after the 23rd of February will not receive the dividend, which will be paid on the 10th of March.
The company's next dividend payment will be US$0.65 per share. Last year, in total, the company distributed US$2.48 to shareholders. Based on the last year's worth of payments, ONE Gas stock has a trailing yield of around 3.2% on the current share price of $81.79. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether ONE Gas can afford its dividend, and if the dividend could grow.
View our latest analysis for ONE Gas
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. ONE Gas paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether ONE Gas generated enough free cash flow to afford its dividend. Luckily it paid out just 13% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see ONE Gas earnings per share are up 8.3% per annum over the last five years. Decent historical earnings per share growth suggests ONE Gas has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last nine years, ONE Gas has lifted its dividend by approximately 9.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
From a dividend perspective, should investors buy or avoid ONE Gas? Earnings per share growth has been modest and ONE Gas paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. All things considered, we are not particularly enthused about ONE Gas from a dividend perspective.
So while ONE Gas looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - ONE Gas has 3 warning signs we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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