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Scorpio Tankers Inc. (NYSE:STNG) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Scorpio Tankers' shares on or after the 8th of September will not receive the dividend, which will be paid on the 29th of September.
The company's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Looking at the last 12 months of distributions, Scorpio Tankers has a trailing yield of approximately 2.3% on its current stock price of $17.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Scorpio Tankers can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Scorpio Tankers lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 15% of its free cash flow last year.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Scorpio Tankers was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Scorpio Tankers's dividend payments per share have declined at 11% per year on average over the past eight years, which is uninspiring.
We update our analysis on Scorpio Tankers every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Scorpio Tankers worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
So if you want to do more digging on Scorpio Tankers, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 2 warning signs for Scorpio Tankers and you should be aware of them before buying any shares.
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.
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.
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