It looks like Pioneer Natural Resources Company (NYSE:PXD) is about to go ex-dividend in the next four days. You can purchase shares before the 30th of March in order to receive the dividend, which the company will pay on the 14th of April.
Pioneer Natural Resources's next dividend payment will be US$0.56 per share, on the back of last year when the company paid a total of US$2.24 to shareholders. Based on the last year's worth of payments, Pioneer Natural Resources stock has a trailing yield of around 1.4% on the current share price of $161.3. If you buy this business for its dividend, you should have an idea of whether Pioneer Natural Resources's dividend is reliable and sustainable. So we need to investigate whether Pioneer Natural Resources can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Pioneer Natural Resources paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Pioneer Natural Resources 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. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.
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. Pioneer Natural Resources reported a loss last year, but at least the general trend suggests its income has 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.
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, Pioneer Natural Resources has lifted its dividend by approximately 40% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Pioneer Natural Resources? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall, it's hard to get excited about Pioneer Natural Resources from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Pioneer Natural Resources, you should know about the other risks facing this business. In terms of investment risks, we've identified 4 warning signs with Pioneer Natural Resources and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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