Chesapeake Energy (NASDAQ:CHK) Is Paying Out A Dividend Of $0.575

Chesapeake Energy Corporation (NASDAQ:CHK) will pay a dividend of $0.575 on the 5th of September. The dividend yield is 3.4% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for Chesapeake Energy

Chesapeake Energy's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Chesapeake Energy was paying out quite a large proportion of both earnings and cash flow, with the dividend being 151% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 17%, so there isn't too much pressure on the dividend.

Chesapeake Energy's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2021, the dividend has gone from $1.38 total annually to $2.44. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Chesapeake Energy's earnings per share has shrunk at 46% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Chesapeake Energy that investors need to be conscious of moving forward. Is Chesapeake Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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