SM Energy (NYSE:SM) Will Pay A Larger Dividend Than Last Year At $0.18

SM Energy Company's (NYSE:SM) periodic dividend will be increasing on the 5th of February to $0.18, with investors receiving 20% more than last year's $0.15. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.

See our latest analysis for SM Energy

SM Energy's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, SM Energy's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to fall by 3.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 10%, 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 been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was $0.10, compared to the most recent full-year payment of $0.60. This means that it has been growing its distributions at 20% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that SM Energy has been growing its earnings per share at 36% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

SM Energy Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that SM 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. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for SM Energy that investors should know about before committing capital to this stock. 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.