Diamondback Energy, Inc. (NASDAQ:FANG) Is About To Go Ex-Dividend, And It Pays A 5.2% Yield

Readers hoping to buy Diamondback Energy, Inc. (NASDAQ:FANG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Diamondback Energy's shares on or after the 15th of November, you won't be eligible to receive the dividend, when it is paid on the 24th of November.

The company's next dividend payment will be US$3.37 per share. Last year, in total, the company distributed US$8.07 to shareholders. Last year's total dividend payments show that Diamondback Energy has a trailing yield of 5.2% on the current share price of $155.58. 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 Diamondback Energy can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Diamondback Energy

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. That's why it's good to see Diamondback Energy paying out a modest 46% of its earnings. A useful secondary check can be to evaluate whether Diamondback Energy generated enough free cash flow to afford its dividend. Diamondback Energy paid out more free cash flow than it generated - 123%, 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.

While Diamondback Energy's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Diamondback Energy to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Diamondback Energy has grown its earnings rapidly, up 29% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Diamondback Energy has increased its dividend at approximately 59% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Diamondback Energy an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's hard to get excited about Diamondback Energy from a dividend perspective.

While it's tempting to invest in Diamondback Energy for the dividends alone, you should always be mindful of the risks involved. For example - Diamondback Energy has 2 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.