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It looks like Cardinal Energy Ltd. (TSE:CJ) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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 Cardinal Energy's shares on or after the 28th of September, you won't be eligible to receive the dividend, when it is paid on the 16th of October.
The company's next dividend payment will be CA$0.06 per share, on the back of last year when the company paid a total of CA$0.72 to shareholders. Calculating the last year's worth of payments shows that Cardinal Energy has a trailing yield of 9.9% on the current share price of CA$7.27. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Cardinal Energy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Cardinal Energy paid out 57% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Cardinal Energy generated enough free cash flow to afford its dividend. It paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Cardinal 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Cardinal Energy's earnings have been skyrocketing, up 37% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.