Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Murphy Oil Corporation (NYSE:MUR) is about to trade ex-dividend in the next 4 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. Meaning, you will need to purchase Murphy Oil's shares before the 10th of February to receive the dividend, which will be paid on the 1st of March.
The company's next dividend payment will be US$0.28 per share, on the back of last year when the company paid a total of US$1.10 to shareholders. Looking at the last 12 months of distributions, Murphy Oil has a trailing yield of approximately 2.6% on its current stock price of $41.63. 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 investigate whether Murphy Oil can afford its dividend, and if the dividend could grow.
See our latest analysis for Murphy Oil
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Murphy Oil is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.
It's positive to see that Murphy Oil'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Murphy Oil has grown its earnings rapidly, up 21% a year for the past five years. Murphy Oil 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Murphy Oil's dividend payments are broadly unchanged compared to where they were 10 years ago.
To Sum It Up
Is Murphy Oil worth buying for its dividend? Murphy Oil has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Murphy Oil for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 3 warning signs for Murphy Oil (1 is potentially serious) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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