Be Sure To Check Out VAALCO Energy, Inc. (NYSE:EGY) Before It Goes Ex-Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see VAALCO Energy, Inc. (NYSE:EGY) is about to trade ex-dividend in the next 4 days. 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. Thus, you can purchase VAALCO Energy's shares before the 23rd of March in order to receive the dividend, which the company will pay on the 31st of March.
The company's next dividend payment will be US$0.063 per share. Last year, in total, the company distributed US$0.13 to shareholders. Last year's total dividend payments show that VAALCO Energy has a trailing yield of 6.0% on the current share price of $4.16. If you buy this business for its dividend, you should have an idea of whether VAALCO Energy's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for VAALCO Energy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. VAALCO Energy is paying out just 8.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Fortunately, it paid out only 28% of its free cash flow in the past 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?
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see VAALCO Energy earnings per share are up 9.5% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Given that VAALCO Energy has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Final Takeaway
Should investors buy VAALCO Energy for the upcoming dividend? Earnings per share growth has been growing somewhat, and VAALCO Energy 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 VAALCO Energy is halfway there. There's a lot to like about VAALCO Energy, and we would prioritise taking a closer look at it.
While it's tempting to invest in VAALCO Energy for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 3 warning signs for VAALCO Energy (2 don't sit too well with us) you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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