Should Income Investors Look At Hemisphere Energy Corporation (CVE:HME) Before Its Ex-Dividend?
Readers hoping to buy Hemisphere Energy Corporation (CVE:HME) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Hemisphere Energy’s shares before the 12th of June to receive the dividend, which will be paid on the 26th of June.
The company’s next dividend payment will be CA$0.025 per share. Last year, in total, the company distributed CA$0.16 to shareholders. Calculating the last year’s worth of payments shows that Hemisphere Energy has a trailing yield of 5.6% on the current share price of CA$2.86. If you buy this business for its dividend, you should have an idea of whether Hemisphere Energy’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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Hemisphere Energy’s payout ratio is modest, at just 35% of profit. A useful secondary check can be to evaluate whether Hemisphere Energy generated enough free cash flow to afford its dividend. Over the past year it paid out 112% of its free cash flow as dividends, which is uncomfortably high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.
Hemisphere Energy paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Hemisphere Energy’s ability to maintain its dividend.
View our latest analysis for Hemisphere Energy
Click here to see how much of its profit Hemisphere Energy paid out over the last 12 months.
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 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 Hemisphere Energy’s earnings have been skyrocketing, up 31% per annum for the past five years. Earnings have been growing quickly, 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 four years, Hemisphere Energy has lifted its dividend by approximately 12% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Has Hemisphere Energy got what it takes to maintain its dividend payments? We like that Hemisphere Energy has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we’re not all that optimistic on its dividend prospects.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We’ve identified 3 warning signs with Hemisphere Energy (at least 2 which shouldn’t be ignored), and understanding them should be part of your investment process.
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.
Valuation is complex, but we’re here to simplify it.
Discover if Hemisphere Energy might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
