Coterra Energy (NYSE:CTRA) Is Increasing Its Dividend To $0.68

Coterra Energy Inc.'s (NYSE:CTRA) dividend will be increasing from last year's payment of the same period to $0.68 on 30th of November. This makes the dividend yield 9.4%, which is above the industry average.

Check out the opportunities and risks within the US Oil and Gas industry.

Coterra Energy Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Coterra Energy's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to fall by 48.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 135%, which could put the dividend under pressure if earnings don't start to improve.

Coterra Energy Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the annual payment back then was $0.04, compared to the most recent full-year payment of $2.72. This works out to be a compound annual growth rate (CAGR) of approximately 52% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Coterra Energy has grown earnings per share at 40% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Coterra Energy Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Coterra Energy is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Coterra Energy that you should be aware of before investing. Is Coterra Energy not quite the opportunity you were looking for? Why not check out 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.