Do These 3 Checks Before Buying Kosmos Energy Ltd. (NYSE:KOS) For Its Upcoming Dividend

It looks like Kosmos Energy Ltd. (NYSE:KOS) is about to go ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 4th of March will not receive the dividend, which will be paid on the 26th of March.

Kosmos Energy's next dividend payment will be US$0.045 per share. Last year, in total, the company distributed US$0.18 to shareholders. Based on the last year's worth of payments, Kosmos Energy has a trailing yield of 5.9% on the current stock price of $3.05. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Kosmos Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kosmos Energy reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Kosmos Energy didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Kosmos Energy was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Given that Kosmos Energy has only been paying a dividend for a year, there's not much of a past history to draw insight from.

We update our analysis on Kosmos Energy every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Should investors buy Kosmos Energy for the upcoming 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." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Ever wonder what the future holds for Kosmos Energy? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top 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.

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