Tethys Oil AB (publ) (STO:TETY) stock is about to trade ex-dividend in 3 days time. Ex-dividend means that investors that purchase the stock on or after the 15th of November will not receive this dividend, which will be paid on the 21st of November.
The upcoming dividend for Tethys Oil is kr1.0 per share, increased from last year's total dividends per share of kr0.8. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Tethys Oil has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether Tethys Oil generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its 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.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Tethys Oil's earnings per share have risen 10% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Tethys Oil has lifted its dividend by approximately 63% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Is Tethys Oil worth buying for its dividend? Tethys Oil has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Tethys Oil looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Tethys Oil? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.