Petrus Resources Ltd. (TSE:PRQ) Pays A CA$0.01 Dividend In Just Four Days

It looks like Petrus Resources Ltd. (TSE:PRQ) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Petrus Resources' shares on or after the 16th of August will not receive the dividend, which will be paid on the 30th of August.

The company's next dividend payment will be CA$0.01 per share, and in the last 12 months, the company paid a total of CA$0.12 per share. Last year's total dividend payments show that Petrus Resources has a trailing yield of 9.0% on the current share price of CA$1.33. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Petrus Resources

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. Petrus Resources has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether Petrus Resources generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 373% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Petrus Resources is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Petrus Resources paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Petrus Resources to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Petrus Resources 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Petrus Resources's earnings have been skyrocketing, up 47% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Given that Petrus Resources has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Is Petrus Resources an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in Petrus Resources for the dividends alone, you should always be mindful of the risks involved. For example - Petrus Resources has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.