Coterra Energy Inc. (NYSE:CTRA) is about to trade ex-dividend in the next three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Coterra Energy's shares on or after the 15th of November, you won't be eligible to receive the dividend, when it is paid on the 30th of November.
The company's next dividend payment will be US$0.68 per share, and in the last 12 months, the company paid a total of US$2.72 per share. Based on the last year's worth of payments, Coterra Energy stock has a trailing yield of around 9.9% on the current share price of $27.53. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Coterra Energy paying out a modest 43% of its earnings. A useful secondary check can be to evaluate whether Coterra Energy generated enough free cash flow to afford its dividend. Dividends consumed 61% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Coterra Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Coterra Energy has grown its earnings rapidly, up 40% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Coterra Energy has delivered an average of 52% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Coterra Energy worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Coterra Energy paid out less than half its earnings and a bit over half its free cash flow. Coterra Energy looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Coterra Energy looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Coterra Energy that we recommend you consider before investing in the business.
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.
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