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 Tethys Oil AB (publ) (STO:TETY) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 15th of November will not receive this dividend, which will be paid on the 21st of November.
The upcoming dividend for Tethys Oil will put a total of kr1.0 per share in shareholders’ pockets, up from last year’s total dividends of kr0.8. If you buy this business for its dividend, you should have an idea of whether Tethys Oil’s dividend is reliable and sustainable. As a result, readers should always check whether Tethys Oil has been able to grow its dividends, or if the dividend might be cut.
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. Tethys Oil has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether Tethys Oil generated enough free cash flow to afford its dividend. Luckily it paid out just 17% of its free cash flow last year.
It’s positive to see that Tethys Oil’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Tethys Oil’s earnings per share have been growing at 10% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Tethys Oil has delivered an average of 63% per year annual increase in its dividend, based on the past four years of dividend payments. 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 Tethys Oil for the upcoming dividend? Tethys Oil has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There’s a lot to like about Tethys Oil, and we would prioritise taking a closer look at it.
Wondering what the future holds for Tethys Oil? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.