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 4 days. The ex-dividend date is commonly two business days 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. Therefore, if you purchase Pine Cliff Energy's shares on or after the 15th of May, you won't be eligible to receive the dividend, when it is paid on the 30th of May.

The company's next dividend payment will be CA$0.00125 per share, and in the last 12 months, the company paid a total of CA$0.015 per share. Based on the last year's worth of payments, Pine Cliff Energy has a trailing yield of 2.6% on the current stock price of CA$0.57. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Our free stock report includes 1 warning sign investors should be aware of before investing in Pine Cliff Energy. Read for free now.

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. Pine Cliff Energy reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Pine Cliff 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 paid out 98% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Check out our latest analysis for Pine Cliff Energy

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?

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. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Pine Cliff Energy has seen its dividend decline 47% per annum on average over the past three years, which is not great to see.

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

To Sum It Up

Should investors buy Pine Cliff Energy for the upcoming dividend? It's hard to get used to Pine Cliff Energy paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by 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.

With that being said, if you're still considering Pine Cliff Energy as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Pine Cliff Energy that we recommend you consider before investing in the business.

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.