Three Days Left Until 2020 Bulkers Ltd. (OB:2020) Trades Ex-Dividend

Readers hoping to buy 2020 Bulkers Ltd. (OB:2020) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase 2020 Bulkers' shares before the 23rd of January in order to receive the dividend, which the company will pay on the 31st of January.

The company's next dividend payment will be US$0.21 per share, on the back of last year when the company paid a total of US$1.35 to shareholders. Looking at the last 12 months of distributions, 2020 Bulkers has a trailing yield of approximately 10.0% on its current stock price of NOK143. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for 2020 Bulkers

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. 2020 Bulkers paid out a comfortable 35% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 35% of its free cash flow as dividends, a comfortable payout level 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see 2020 Bulkers has grown its earnings rapidly, up 35% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, 2020 Bulkers has increased its dividend at approximately 39% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid 2020 Bulkers? 2020 Bulkers has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past four years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about 2020 Bulkers, and we would prioritise taking a closer look at it.

While it's tempting to invest in 2020 Bulkers for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 5 warning signs for 2020 Bulkers that we strongly recommend you have a look at before investing in the company.

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.