It looks like EOG Resources, Inc. (NYSE:EOG) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 16th of January will not receive this dividend, which will be paid on the 31st of January.
EOG Resources's next dividend payment will be US$0.29 per share. Last year, in total, the company distributed US$1.15 to shareholders. Looking at the last 12 months of distributions, EOG Resources has a trailing yield of approximately 1.3% on its current stock price of $86.27. 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.
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. EOG Resources has a low and conservative payout ratio of just 20% of its income after tax. 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. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.
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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at EOG Resources, with earnings per share up 5.0% on average over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. EOG Resources has delivered 15% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is EOG Resources worth buying for its dividend? Earnings per share growth has been growing somewhat, and EOG Resources is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but EOG Resources is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about EOG Resources, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for EOG Resources? See what the 22 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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