Why It Might Not Make Sense To Buy Tidewater Midstream and Infrastructure Ltd. (TSE:TWM) For Its Upcoming Dividend

Tidewater Midstream and Infrastructure Ltd. (TSE:TWM) stock is about to trade ex-dividend in 2 days. If you purchase the stock on or after the 30th of December, you won't be eligible to receive this dividend, when it is paid on the 29th of January.

Tidewater Midstream and Infrastructure's upcoming dividend is CA$0.01 a share, following on from the last 12 months, when the company distributed a total of CA$0.04 per share to shareholders. Last year's total dividend payments show that Tidewater Midstream and Infrastructure has a trailing yield of 5.1% on the current share price of CA$0.79. 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! So we need to investigate whether Tidewater Midstream and Infrastructure can afford its dividend, and if the dividend could grow.

See our latest analysis for Tidewater Midstream and Infrastructure

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. Tidewater Midstream and Infrastructure 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 Tidewater Midstream and Infrastructure 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 12% 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.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Tidewater Midstream and Infrastructure was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tidewater Midstream and Infrastructure's dividend payments are effectively flat on where they were five years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Remember, you can always get a snapshot of Tidewater Midstream and Infrastructure's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Tidewater Midstream and Infrastructure for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Tidewater Midstream and Infrastructure despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Tidewater Midstream and Infrastructure is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

When trading Tidewater Midstream and Infrastructure or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.