ConocoPhillips (NYSE:COP) Could Be A Buy For Its Upcoming Dividend

ConocoPhillips (NYSE:COP) stock is about to trade ex-dividend in 4 days. 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. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase ConocoPhillips' shares before the 19th of May in order to receive the dividend, which the company will pay on the 2nd of June.

The company's next dividend payment will be US$0.78 per share. Last year, in total, the company distributed US$3.12 to shareholders. Last year's total dividend payments show that ConocoPhillips has a trailing yield of 3.3% on the current share price of US$94.17. 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.

Our free stock report includes 1 warning sign investors should be aware of before investing in ConocoPhillips. Read for free now.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately ConocoPhillips's payout ratio is modest, at just 39% of profit. A useful secondary check can be to evaluate whether ConocoPhillips generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 43% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that ConocoPhillips'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.

View our latest analysis for ConocoPhillips

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at ConocoPhillips, with earnings per share up 3.2% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. ConocoPhillips has delivered an average of 0.7% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Is ConocoPhillips an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and ConocoPhillips is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and ConocoPhillips is halfway there. There's a lot to like about ConocoPhillips, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks ConocoPhillips is facing. Our analysis shows 1 warning sign for ConocoPhillips and you should be aware of this before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.