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It looks like Genesis Energy Limited (NZSE:GNE) is about to go ex-dividend in the next four 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Genesis Energy's shares before the 21st of September in order to be eligible for the dividend, which will be paid on the 6th of October.
The company's upcoming dividend is NZ$0.10 a share, following on from the last 12 months, when the company distributed a total of NZ$0.18 per share to shareholders. Looking at the last 12 months of distributions, Genesis Energy has a trailing yield of approximately 7.0% on its current stock price of NZ$2.5. 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 Genesis Energy can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Genesis Energy
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Genesis Energy paid out 95% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Genesis Energy's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Genesis Energy has grown its earnings rapidly, up 56% a year for the past five years.