It looks like Devon Energy Corporation (NYSE:DVN) is about to go ex-dividend in the next three days. Investors can purchase shares before the 10th of December in order to be eligible for this dividend, which will be paid on the 30th of December.

Devon Energy's next dividend payment will be US$0.11 per share, and in the last 12 months, the company paid a total of US$0.44 per share. Calculating the last year's worth of payments shows that Devon Energy has a trailing yield of 2.6% on the current share price of $16.72. If you buy this business for its dividend, you should have an idea of whether Devon Energy's dividend is reliable and sustainable. So we need to investigate whether Devon Energy can afford its dividend, and if the dividend could grow.

View our latest analysis for Devon Energy

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. Devon Energy paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Devon Energy didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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. If earnings fall far enough, the company could be forced to cut its dividend. Devon Energy reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Devon Energy's dividend payments per share have declined at 3.7% per year on average over the past 10 years, which is uninspiring.

We update our analysis on Devon Energy every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is Devon Energy worth buying for its dividend? It's hard to get used to Devon Energy paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

If you want to look further into Devon Energy, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 2 warning signs with Devon Energy and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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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