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Total Energy Services Inc. (TSE:TOT) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 27th of September, you won't be eligible to receive this dividend, when it is paid on the 31st of October.
Total Energy Services's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.2 per share to shareholders. Last year's total dividend payments show that Total Energy Services has a trailing yield of 3.7% on the current share price of CA$6.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Total Energy Services
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. Fortunately Total Energy Services's payout ratio is modest, at just 43% of profit. A useful secondary check can be to evaluate whether Total Energy Services generated enough free cash flow to afford its dividend. Luckily it paid out just 17% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Total Energy Services's earnings per share have dropped 14% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Total Energy Services has seen its dividend decline 4.0% per annum on average over the past ten years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Final Takeaway
Has Total Energy Services got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, Total Energy Services looks okay on this analysis, although it doesn't appear a stand-out opportunity.