Read This Before Considering GeoPark Limited (NYSE:GPRK) For Its Upcoming US$0.021 Dividend

By
Simply Wall St
Published
November 14, 2020
NYSE:GPRK

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that GeoPark Limited (NYSE:GPRK) is about to go ex-dividend in just four days. You can purchase shares before the 19th of November in order to receive the dividend, which the company will pay on the 9th of December.

GeoPark's next dividend payment will be US$0.021 per share. Last year, in total, the company distributed US$0.082 to shareholders. Based on the last year's worth of payments, GeoPark has a trailing yield of 0.9% on the current stock price of $8.95. If you buy this business for its dividend, you should have an idea of whether GeoPark's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for GeoPark

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. GeoPark's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If GeoPark didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 5.8% of its free cash flow as dividends last year, which is conservatively low.

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

historic-dividend
NYSE:GPRK Historic Dividend November 14th 2020

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 fall far enough, the company could be forced to cut its dividend. GeoPark was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Unfortunately GeoPark has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Get our latest analysis on GeoPark's balance sheet health here.

Final Takeaway

Should investors buy GeoPark for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

While it's tempting to invest in GeoPark for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for GeoPark and you should be aware of it before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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