We Wouldn't Be Too Quick To Buy Ovintiv Inc. (TSE:OVV) Before It Goes Ex-Dividend

By
Simply Wall St
Published
September 09, 2021
TSX:OVV
Source: Shutterstock

Ovintiv Inc. (TSE:OVV) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Accordingly, Ovintiv investors that purchase the stock on or after the 14th of September will not receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be US$0.14 per share, on the back of last year when the company paid a total of US$0.56 to shareholders. Last year's total dividend payments show that Ovintiv has a trailing yield of 2.0% on the current share price of CA$35.24. 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! As a result, readers should always check whether Ovintiv has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Ovintiv

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Ovintiv reported a loss last year, so it's not great to see that it has continued paying a dividend. 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. It paid out 7.1% of its free cash flow as dividends last year, which is conservatively low.

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

historic-dividend
TSX:OVV Historic Dividend September 10th 2021

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. Ovintiv reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ovintiv has seen its dividend decline 18% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

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

Final Takeaway

Is Ovintiv an attractive dividend stock, or better left on the shelf? It's hard to get used to Ovintiv paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Ovintiv is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Ovintiv don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for Ovintiv you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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