Should You Buy Devon Energy Corporation (NYSE:DVN) For Its Upcoming Dividend?

Devon Energy Corporation (NYSE:DVN) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. Thus, you can purchase Devon Energy's shares before the 14th of June in order to receive the dividend, which the company will pay on the 30th of June.

The company's upcoming dividend is US$0.72 a share, following on from the last 12 months, when the company distributed a total of US$4.55 per share to shareholders. Last year's total dividend payments show that Devon Energy has a trailing yield of 9.1% on the current share price of $50.02. If you buy this business for its dividend, you should have an idea of whether Devon Energy's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Devon Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Devon Energy is paying out an acceptable 55% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Devon Energy generated enough free cash flow to afford its dividend. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Devon Energy has grown its earnings rapidly, up 47% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Devon Energy has lifted its dividend by approximately 19% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Devon Energy an attractive dividend stock, or better left on the shelf? Devon Energy's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Devon Energy, and we would prioritise taking a closer look at it.

While it's tempting to invest in Devon Energy for the dividends alone, you should always be mindful of the risks involved. For example, Devon Energy has 4 warning signs (and 2 which can't be ignored) we think you should know about.

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.