Hemisphere Energy (CVE:HME) Could Be A Buy For Its Upcoming Dividend

Hemisphere Energy Corporation (CVE:HME) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Hemisphere Energy's shares before the 8th of February in order to receive the dividend, which the company will pay on the 23rd of February.

The company's upcoming dividend is CA$0.025 a share, following on from the last 12 months, when the company distributed a total of CA$0.10 per share to shareholders. Looking at the last 12 months of distributions, Hemisphere Energy has a trailing yield of approximately 7.5% on its current stock 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! So we need to investigate whether Hemisphere Energy can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Hemisphere Energy

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. Fortunately Hemisphere Energy's payout ratio is modest, at just 43% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. 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 Hemisphere Energy's earnings have been skyrocketing, up 68% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hemisphere Energy's dividend payments are broadly unchanged compared to where they were two years ago.

The Bottom Line

Has Hemisphere Energy got what it takes to maintain its dividend payments? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Hemisphere Energy, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Hemisphere Energy is facing. For example, we've found 3 warning signs for Hemisphere Energy (1 shouldn't be ignored!) that deserve your attention before investing in the shares.

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.