It looks like Magnolia Oil & Gas Corporation (NYSE:MGY) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Therefore, if you purchase Magnolia Oil & Gas' shares on or after the 9th of February, you won't be eligible to receive the dividend, when it is paid on the 1st of March.
The company's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Last year's total dividend payments show that Magnolia Oil & Gas has a trailing yield of 1.7% on the current share price of $23.1. If you buy this business for its dividend, you should have an idea of whether Magnolia Oil & Gas's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Magnolia Oil & Gas
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. Magnolia Oil & Gas has a low and conservative payout ratio of just 9.2% of its income after tax. A useful secondary check can be to evaluate whether Magnolia Oil & Gas generated enough free cash flow to afford its dividend. It paid out 6.3% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Magnolia Oil & Gas'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?
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Magnolia Oil & Gas's earnings have been skyrocketing, up 177% per annum for the past five years. Magnolia Oil & Gas looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Given that Magnolia Oil & Gas has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Has Magnolia Oil & Gas got what it takes to maintain its dividend payments? We love that Magnolia Oil & Gas is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Magnolia Oil & Gas, and we would prioritise taking a closer look at it.
While it's tempting to invest in Magnolia Oil & Gas for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 2 warning signs we've spotted with Magnolia Oil & Gas (including 1 which doesn't sit too well with us).
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.
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