Don't Race Out To Buy Pine Cliff Energy Ltd. (TSE:PNE) Just Because It's Going Ex-Dividend

It looks like Pine Cliff Energy Ltd. (TSE:PNE) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase Pine Cliff Energy's shares before the 14th of March to receive the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be CA$0.005 per share. Last year, in total, the company distributed CA$0.06 to shareholders. Looking at the last 12 months of distributions, Pine Cliff Energy has a trailing yield of approximately 7.6% on its current stock price of CA$0.79. 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 Pine Cliff Energy can afford its dividend, and if the dividend could grow.

See our latest analysis for Pine Cliff Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Pine Cliff Energy 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. 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 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. Pine Cliff Energy paid out more free cash flow than it generated - 124%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Click here to see how much of its profit Pine Cliff Energy paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Pine Cliff 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. Pine Cliff Energy's dividend payments per share have declined at 16% per year on average over the past three years, which is uninspiring.

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

Final Takeaway

Has Pine Cliff Energy got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not that we think Pine Cliff Energy 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 Pine Cliff Energy don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for Pine Cliff Energy you should know about.

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.