It’s exciting to see Canadian Natural Resources Limited is about to trade ex-dividend in the next four 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. In other words, investors can purchase Canadian Natural Resources’ shares before the 16th of March in order to be eligible for the dividend, which will be paid on the 5th of April.
The company’s next dividend payment will be CA$0.90 per share. Last year, in total, the company distributed CA$3.40 to shareholders. Last year’s total dividend payments show that Canadian Natural Resources has a trailing yield of 4.6% on the current share price of CA$77.99. If you buy this business for its dividend, you should have an idea of whether Canadian Natural Resources’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s 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 Canadian Natural Resources’s payout ratio is modest, at just 32% of profit. 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. The good news is it paid out just 23% of its free cash flow in the last year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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 fall far enough, the company could be forced to cut its dividend. It’s encouraging to see Canadian Natural Resources has grown its earnings rapidly, up 37% a year for the past five years. Canadian Natural Resources is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Canadian Natural Resources has delivered an average of 24% per year annual increase in its dividend, based on the past 10 years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Canadian Natural Resources worth buying for its dividend? Canadian Natural Resources has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
While it’s tempting to invest in Canadian Natural Resources for the dividends alone, you should always be mindful of the risks involved. For example, Canadian Natural Resources has 2 warning signs (and 1 which is potentially serious) we think you should know about.
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.