There's A Lot To Like About Cenovus Energy's (TSE:CVE) Upcoming CA$0.135 Dividend

Readers hoping to buy Cenovus Energy Inc. (TSE:CVE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Cenovus Energy investors that purchase the stock on or after the 16th of May will not receive the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be CA$0.135 per share, on the back of last year when the company paid a total of CA$0.52 to shareholders. Based on the last year's worth of payments, Cenovus Energy stock has a trailing yield of around 1.9% on the current share price of CA$28.07. If you buy this business for its dividend, you should have an idea of whether Cenovus Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Cenovus Energy

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. Cenovus Energy has a low and conservative payout ratio of just 23% of its income after tax. A useful secondary check can be to evaluate whether Cenovus Energy generated enough free cash flow to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.

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.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Cenovus Energy has grown its earnings rapidly, up 50% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Cenovus Energy looks like a promising growth company.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cenovus Energy has seen its dividend decline 5.9% per annum on average over the past 10 years, which is not great to see. Cenovus Energy is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

From a dividend perspective, should investors buy or avoid Cenovus Energy? Cenovus Energy has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Cenovus Energy, and we would prioritise taking a closer look at it.

Wondering what the future holds for Cenovus Energy? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.