Why You Should Leave Bonterra Energy Corp. (TSE:BNE)'s Upcoming Dividend On The Shelf
Bonterra Energy Corp. (TSE:BNE) is about to trade ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 13th of February will not receive this dividend, which will be paid on the 28th of February.
Bonterra Energy's upcoming dividend is CA$0.01 a share, following on from the last 12 months, when the company distributed a total of CA$0.12 per share to shareholders. Based on the last year's worth of payments, Bonterra Energy stock has a trailing yield of around 3.6% on the current share price of CA$3.3. 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.
See our latest analysis for Bonterra Energy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bonterra Energy is paying out an acceptable 57% of its profit, a common payout level among most companies. 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 36% of its free cash flow in the past year.
It's positive to see that Bonterra 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. 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 Bonterra Energy's earnings per share have dropped 29% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bonterra Energy has seen its dividend decline 22% per annum on average over the past ten years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Is Bonterra Energy an attractive dividend stock, or better left on the shelf? 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. All things considered, we are not particularly enthused about Bonterra Energy from a dividend perspective.
Ever wonder what the future holds for Bonterra Energy? See what the four 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
