In This Article:
Readers hoping to buy Chevron Corporation (NYSE:CVX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Chevron's shares before the 18th of May in order to be eligible for the dividend, which will be paid on the 12th of June.
The company's upcoming dividend is US$1.51 a share, following on from the last 12 months, when the company distributed a total of US$6.04 per share to shareholders. Looking at the last 12 months of distributions, Chevron has a trailing yield of approximately 3.9% on its current stock price of $156.62. 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 investigate whether Chevron can afford its dividend, and if the dividend could grow.
View our latest analysis for Chevron
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. Chevron paid out a comfortable 31% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 31% of its free cash flow in the past year.
It's positive to see that Chevron'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. It's encouraging to see Chevron has grown its earnings rapidly, up 31% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.