Readers hoping to buy TOTAL S.A. (EPA:FP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 27th of September in order to receive the dividend, which the company will pay on the 1st of October.
TOTAL's next dividend payment will be €0.7 per share, and in the last 12 months, the company paid a total of €2.9 per share. Based on the last year's worth of payments, TOTAL stock has a trailing yield of around 5.3% on the current share price of €49.48. If you buy this business for its dividend, you should have an idea of whether TOTAL's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. TOTAL is paying out an acceptable 71% of its profit, a common payout level among most companies. 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. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that TOTAL'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 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. So we're not too excited that TOTAL's earnings are down 3.4% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TOTAL's dividend payments are effectively flat on where they were ten years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
The Bottom Line
Should investors buy TOTAL for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Ever wonder what the future holds for TOTAL? See what the 21 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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 email@example.com. 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.