Baytex Energy Corp. (TSE:BTE) Is About To Go Ex-Dividend, And It Pays A 2.5% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Baytex Energy Corp. (TSE:BTE) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Baytex Energy's shares before the 13th of December in order to be eligible for the dividend, which will be paid on the 2nd of January.

The company's upcoming dividend is CA$0.0225 a share, following on from the last 12 months, when the company distributed a total of CA$0.09 per share to shareholders. Based on the last year's worth of payments, Baytex Energy has a trailing yield of 2.5% on the current stock price of CA$3.66. If you buy this business for its dividend, you should have an idea of whether Baytex Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Baytex Energy

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Baytex Energy's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Baytex 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. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Baytex Energy 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Baytex Energy has seen its dividend decline 29% per annum on average over the past 10 years, which is not great to see.

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

To Sum It Up

Should investors buy Baytex Energy for the upcoming dividend? It's hard to get used to Baytex Energy paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. To summarise, Baytex Energy looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Baytex Energy has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Baytex Energy and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.