It Might Not Be A Great Idea To Buy W&T Offshore, Inc. (NYSE:WTI) For Its Next Dividend
It looks like W&T Offshore, Inc. (NYSE:WTI) is about to go ex-dividend in the next three days. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase W&T Offshore's shares before the 12th of November in order to be eligible for the dividend, which will be paid on the 19th of November.
The company's upcoming dividend is US$0.01 a share, following on from the last 12 months, when the company distributed a total of US$0.04 per share to shareholders. Based on the last year's worth of payments, W&T Offshore has a trailing yield of 1.3% on the current stock price of US$3.09. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. W&T Offshore's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If W&T Offshore didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 10% of its free cash flow in the last year.
View our latest analysis for W&T Offshore
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. W&T Offshore reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the W&T Offshore dividends are largely the same as they were three 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.
Remember, you can always get a snapshot of W&T Offshore's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is W&T Offshore an attractive dividend stock, or better left on the shelf? It's hard to get used to W&T Offshore paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think W&T Offshore is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering W&T Offshore as an investment, you'll find it beneficial to know what risks this stock is facing. For example, W&T Offshore has 2 warning signs (and 1 which is concerning) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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