Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that National Fuel Gas Company (NYSE:NFG) is about to go ex-dividend in just 3 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. Meaning, you will need to purchase National Fuel Gas' shares before the 31st of March to receive the dividend, which will be paid on the 15th of April.
The company's next dividend payment will be US$0.535 per share, and in the last 12 months, the company paid a total of US$2.14 per share. Calculating the last year's worth of payments shows that National Fuel Gas has a trailing yield of 2.3% on the current share price of US$94.68. If you buy this business for its dividend, you should have an idea of whether National Fuel Gas's dividend is reliable and sustainable. So we need to investigate whether National Fuel Gas can afford its dividend, and if the dividend could grow.
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 National Fuel Gas's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether National Fuel Gas generated enough free cash flow to afford its dividend. The company paid out 93% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While National Fuel Gas'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. Cash is king, as they say, and were National Fuel Gas to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for National Fuel Gas
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see National Fuel Gas earnings per share are up 6.4% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, National Fuel Gas has lifted its dividend by approximately 3.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is National Fuel Gas an attractive dividend stock, or better left on the shelf? National Fuel Gas has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of National Fuel Gas's dividend merits.
If you want to look further into National Fuel Gas, it's worth knowing the risks this business faces. For example - National Fuel Gas has 2 warning signs we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.