It Might Not Be A Great Idea To Buy Cohen Development Gas & Oil Ltd. (TLV:CDEV) For Its Next Dividend

Readers hoping to buy Cohen Development Gas & Oil Ltd. (TLV:CDEV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Cohen Development Gas & Oil's shares before the 5th of December to receive the dividend, which will be paid on the 18th of December.

The company's next dividend payment will be US$1.67084 per share, on the back of last year when the company paid a total of US$3.34 to shareholders. Looking at the last 12 months of distributions, Cohen Development Gas & Oil has a trailing yield of approximately 8.6% on its current stock price of ₪140.80. If you buy this business for its dividend, you should have an idea of whether Cohen Development Gas & Oil's dividend is reliable and sustainable. So we need to investigate whether Cohen Development Gas & Oil can afford its dividend, and if the dividend could grow.

View our latest analysis for Cohen Development Gas & Oil

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. Cohen Development Gas & Oil paid out 101% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. Cohen Development Gas & Oil paid out more free cash flow than it generated - 114%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Cohen Development Gas & Oil's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Cohen Development Gas & Oil paid out over the last 12 months.

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. That's why it's comforting to see Cohen Development Gas & Oil's earnings have been skyrocketing, up 29% per annum for the past five years. Earnings per share have been growing rapidly, but the company is paying out an uncomfortably high percentage of its earnings as dividends. Fast-growing businesses normally need to reinvest most of their earnings in order to maintain growth, so we'd suspect that either earnings growth will slow or the dividend may not be increased for a while.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cohen Development Gas & Oil has delivered 11% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Cohen Development Gas & Oil for the upcoming dividend? While it's nice to see earnings per share growing, we're curious about how Cohen Development Gas & Oil intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Cohen Development Gas & Oil as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 1 warning sign for Cohen Development Gas & Oil that you should be aware of before investing in their 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.