Like I said in our last post, we are catching up for lost time with some dividend updates. We are taking a closer look at ConocoPhillips specifically today. How do they measure up the the dividend check list? Ilan Moscovitz breaks the research down.
First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors’ doubts about the payout’s sustainability. If investors had confidence in the stock, they’d be buying it, driving up the share price and shrinking the yield.
ConocoPhillips yields 3.8%, a bit better than the S&P 500′s 2.1%.
2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last year to the earnings it generated. A ratio that’s too high – say, greater than 80% of earnings – indicates that the company may be stretching to make payouts it can’t afford, even when its dividend yield doesn’t seem particularly high.
ConocoPhillips has a modest payout ratio of 2%.
3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments – any ratio less than 5 is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company’s total debt burden.
COP has potential to be a dividend that is ready to blow. If COP is able to keep up their growth they could be a strong competitor in the dividend world. Watch them closely, it may be your next big dividend investment!
Quotes taken from report by Ilan Moscovitz, Read the entire article here.
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