Income Investors Should Know That Genesis Energy Limited (NZSE:GNE) Goes Ex-Dividend Soon

It looks like Genesis Energy Limited (NZSE:GNE) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Genesis Energy investors that purchase the stock on or after the 20th of March will not receive the dividend, which will be paid on the 10th of April.

The company's upcoming dividend is NZ$0.0823529 a share, following on from the last 12 months, when the company distributed a total of NZ$0.18 per share to shareholders. Last year's total dividend payments show that Genesis Energy has a trailing yield of 7.2% on the current share price of NZ$2.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Genesis Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Genesis Energy distributed an unsustainably high 189% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Genesis Energy fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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. It's encouraging to see Genesis Energy has grown its earnings rapidly, up 33% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Genesis Energy has lifted its dividend by approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Genesis Energy is keeping back more of its profits to grow the business.

To Sum It Up

Is Genesis Energy worth buying for its dividend? Genesis Energy has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Genesis Energy today.

However if you're still interested in Genesis Energy as a potential investment, you should definitely consider some of the risks involved with Genesis Energy. For example, Genesis Energy has 4 warning signs (and 1 which is a bit unpleasant) we think 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.