Just Three Days Till Tourmaline Oil Corp. (TSE:TOU) Will Be Trading Ex-Dividend

Tourmaline Oil Corp. (TSE:TOU) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. 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, Tourmaline Oil investors that purchase the stock on or after the 13th of March will not receive the dividend, which will be paid on the 25th of March.

The company's upcoming dividend is CA$0.35 a share, following on from the last 12 months, when the company distributed a total of CA$3.90 per share to shareholders. Looking at the last 12 months of distributions, Tourmaline Oil has a trailing yield of approximately 6.0% on its current stock price of CA$63.69. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Tourmaline Oil

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. Tourmaline Oil paid out a comfortable 37% of its profit last year. A useful secondary check can be to evaluate whether Tourmaline Oil generated enough free cash flow to afford its dividend. It paid out 100% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Tourmaline Oil 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 Tourmaline Oil to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Tourmaline Oil has grown its earnings rapidly, up 23% a year 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last seven years, Tourmaline Oil has lifted its dividend by approximately 43% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Tourmaline Oil? We like that Tourmaline Oil has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Tourmaline Oil's dividend merits.

While it's tempting to invest in Tourmaline Oil for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Tourmaline Oil 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.