SM Energy (NYSE:SM) Is Due To Pay A Dividend Of $0.15

The board of SM Energy Company (NYSE:SM) has announced that it will pay a dividend on the 6th of November, with investors receiving $0.15 per share. This payment means the dividend yield will be 1.4%, which is below the average for the industry.

See our latest analysis for SM Energy

SM Energy's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, SM Energy was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 17.4%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 8.5%, which we are pretty comfortable with and we think is feasible on an earnings basis.

SM Energy Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.10 in 2013 to the most recent total annual payment of $0.60. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that SM Energy has been growing its earnings per share at 36% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

SM Energy Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for SM Energy (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of 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.