We Wouldn't Be Too Quick To Buy Equinor ASA (OB:EQNR) Before It Goes Ex-Dividend

Equinor ASA (OB:EQNR) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 14th of August will not receive the dividend, which will be paid on the 28th of August.

Equinor's next dividend payment will be kr0.09 per share, on the back of last year when the company paid a total of kr0.36 to shareholders. Based on the last year's worth of payments, Equinor has a trailing yield of 2.3% on the current stock price of NOK143.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Equinor can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Equinor

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Equinor 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. Equinor paid out more free cash flow than it generated - 194%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Equinor reported a loss last year, but at least the general trend suggests its income has 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Equinor has seen its dividend decline 8.7% per annum on average over the past 10 years, which is not great to see.

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

Final Takeaway

Is Equinor an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." It's not that we think Equinor is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Equinor despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 1 warning sign for Equinor that you should be aware of before investing in their 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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