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Santos Limited (ASX:STO) stock is about to trade ex-dividend in 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Thus, you can purchase Santos' shares before the 24th of February in order to receive the dividend, which the company will pay on the 26th of March.
The company's next dividend payment will be US$0.103 per share, and in the last 12 months, the company paid a total of US$0.23 per share. Based on the last year's worth of payments, Santos stock has a trailing yield of around 5.5% on the current share price of AU$6.68. If you buy this business for its dividend, you should have an idea of whether Santos's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Santos
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Santos paid out more than half (62%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 221% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Santos intends to continue funding this dividend, or if it could be forced to cut the payment.
While Santos's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Santos's ability to maintain its dividend.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Santos earnings per share are up 3.1% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.