Energean plc (LON:ENOG) Pays A US$0.30 Dividend In Just One Day

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Energean plc (LON:ENOG) is about to trade ex-dividend in the next couple of days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. In other words, investors can purchase Energean's shares before the 6th of March in order to be eligible for the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be US$0.30 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Looking at the last 12 months of distributions, Energean has a trailing yield of approximately 9.3% on its current stock price of UK£10.12. If you buy this business for its dividend, you should have an idea of whether Energean's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Energean

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Energean's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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 fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Energean's earnings per share have risen 13% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Energean's dividend payments are effectively flat on where they were two years ago.

Final Takeaway

Is Energean an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Energean's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 79% and 62% respectively. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

While it's tempting to invest in Energean for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Energean you should know about.

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.