Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that TransGlobe Energy Corporation (NASDAQ:TGA) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 29th of August to receive the dividend, which will be paid on the 13th of September.
TransGlobe Energy's upcoming dividend is US$0.035 a share, following on from the last 12 months, when the company distributed a total of US$0.07 per share to shareholders. Calculating the last year's worth of payments shows that TransGlobe Energy has a trailing yield of 5.2% on the current share price of $1.35. If you buy this business for its dividend, you should have an idea of whether TransGlobe Energy's dividend is reliable and sustainable. So we need to investigate whether TransGlobe Energy can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately TransGlobe Energy's payout ratio is modest, at just 26% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that TransGlobe Energy'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?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see TransGlobe Energy's earnings per share have dropped 19% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TransGlobe Energy's dividend payments per share have declined at 19% per year on average over the past 5 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Should investors buy TransGlobe Energy for the upcoming dividend? TransGlobe Energy 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 TransGlobe Energy from a dividend perspective.
Ever wonder what the future holds for TransGlobe Energy? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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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.