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Continental Resources, Inc. (NYSE:CLR) is about to trade ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Continental Resources' shares before the 9th of August in order to receive the dividend, which the company will pay on the 20th of August.
The company's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Based on the last year's worth of payments, Continental Resources has a trailing yield of 1.8% on the current stock price of $32.83. If you buy this business for its dividend, you should have an idea of whether Continental Resources's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Continental Resources has a low and conservative payout ratio of just 11% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 3.3% of its cash flow last year.
It's positive to see that Continental Resources's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Continental Resources earnings per share are up 9.0% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Continental Resources has delivered 73% dividend growth per year on average over the past two years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy Continental Resources for the upcoming dividend? Earnings per share growth has been growing somewhat, and Continental Resources is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Continental Resources is halfway there. Continental Resources looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Continental Resources is facing. To that end, you should learn about the 3 warning signs we've spotted with Continental Resources (including 1 which shouldn't be ignored).
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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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