Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see GeoPark Limited (NYSE:GPRK) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase GeoPark's shares before the 24th of August in order to receive the dividend, which the company will pay on the 8th of September.
The company's next dividend payment will be US$0.13 per share, and in the last 12 months, the company paid a total of US$0.51 per share. Based on the last year's worth of payments, GeoPark has a trailing yield of 3.9% on the current stock price of $13.14. If you buy this business for its dividend, you should have an idea of whether GeoPark's dividend is reliable and sustainable. As a result, readers should always check whether GeoPark has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. GeoPark is paying out just 12% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 7.1% of its free cash flow in the last year.
It's positive to see that GeoPark'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?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see GeoPark's earnings per share have been shrinking at 3.5% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. GeoPark has delivered an average of 46% per year annual increase in its dividend, based on the past three years of dividend payments.
The Bottom Line
Is GeoPark worth buying for its dividend? GeoPark has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
In light of that, while GeoPark has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for GeoPark that we strongly recommend you have a look at before investing in the company.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
