Only Three Days Left To Cash In On Seplat Petroleum Development's (LON:SEPL) Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Seplat Petroleum Development Company Plc (LON:SEPL) is about to go ex-dividend in just three days. You will need to purchase shares before the 30th of April to receive the dividend, which will be paid on the 28th of May.

Seplat Petroleum Development's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.10 to shareholders. Looking at the last 12 months of distributions, Seplat Petroleum Development has a trailing yield of approximately 9.0% on its current stock price of £0.8. If you buy this business for its dividend, you should have an idea of whether Seplat Petroleum Development'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 Seplat Petroleum Development

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. Seplat Petroleum Development 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 cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Seplat Petroleum Development was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Seplat Petroleum Development has seen its dividend decline 2.6% per annum on average over the past seven years, which is not great to see.

Get our latest analysis on Seplat Petroleum Development's balance sheet health here.

Final Takeaway

Should investors buy Seplat Petroleum Development for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. 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.

In light of that, while Seplat Petroleum Development has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 3 warning signs for Seplat Petroleum Development (1 is significant!) that deserve your attention before investing in the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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.
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