It looks like EOG Resources, Inc. (NYSE:EOG) is about to go ex-dividend in the next three days. You can purchase shares before the 16th of July in order to receive the dividend, which the company will pay on the 31st of July.
EOG Resources's next dividend payment will be US$0.38 per share, on the back of last year when the company paid a total of US$1.50 to shareholders. Based on the last year's worth of payments, EOG Resources has a trailing yield of 3.3% on the current stock price of $45.4. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Fortunately EOG Resources's payout ratio is modest, at just 34% of profit. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 21% 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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. EOG Resources's earnings per share have fallen at approximately 7.4% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, EOG Resources has increased its dividend at approximately 18% a year on average.
Has EOG Resources got what it takes to maintain its dividend payments? EOG Resources has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. All things considered, we are not particularly enthused about EOG Resources from a dividend perspective.
On that note, you'll want to research what risks EOG Resources is facing. For example, we've found 2 warning signs for EOG Resources that we recommend you consider before investing in the business.
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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