Three Days Left To Buy Paramount Resources Ltd. (TSE:POU) Before The Ex-Dividend Date
Readers hoping to buy Paramount Resources Ltd. (TSE:POU) 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Paramount Resources' shares before the 12th of August in order to be eligible for the dividend, which will be paid on the 31st of August.
The company's next dividend payment will be CA$0.10 per share, on the back of last year when the company paid a total of CA$1.20 to shareholders. Based on the last year's worth of payments, Paramount Resources stock has a trailing yield of around 4.3% on the current share price of CA$27.77. If you buy this business for its dividend, you should have an idea of whether Paramount Resources's dividend is reliable and sustainable. So we need to investigate whether Paramount Resources can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Paramount Resources
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. Paramount Resources paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 27% of its free cash flow in the past year.
It's positive to see that Paramount 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Paramount Resources's earnings per share have fallen at approximately 17% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Unfortunately Paramount Resources has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
Final Takeaway
Has Paramount Resources got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Paramount Resources's dividend merits.
So while Paramount Resources looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Paramount Resources has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
