Crescent Energy Company (NYSE:CRGY) stock is about to trade ex-dividend in 4 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. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Crescent Energy's shares before the 16th of November in order to be eligible for the dividend, which will be paid on the 30th of November.
The company's next dividend payment will be US$0.12 per share. Last year, in total, the company distributed US$0.48 to shareholders. Based on the last year's worth of payments, Crescent Energy stock has a trailing yield of around 4.3% on the current share price of US$11.14. 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 Crescent Energy can afford its dividend, and if the dividend could grow.
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. Last year, Crescent Energy paid out 243% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Crescent Energy fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Check out our latest analysis for Crescent Energy
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Crescent Energy's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 59% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Crescent Energy's dividend payments are effectively flat on where they were five years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
The Bottom Line
Is Crescent Energy an attractive dividend stock, or better left on the shelf? It's not a great combination to see a company with earnings in decline and paying out 243% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Crescent Energy. Be aware that Crescent Energy is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant...
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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