The board of APA Corporation (NASDAQ:APA) has announced that it will pay a dividend on the 22nd of May, with investors receiving $0.25 per share. This means that the annual payment will be 4.4% of the current stock price, which is in line with the average for the industry.
View our latest analysis for APA
We aren’t too impressed by dividend yields unless they can be sustained over time. However, APA’s earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 58.7% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 39%, which is comfortable for the company to continue in the future.
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The most recent annual payment of $1.00 is about the same as the annual payment 10 years ago. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. It’s encouraging to see that APA has been growing its earnings per share at 62% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We should note that APA has issued stock equal to 23% of shares outstanding. Regularly doing this can be detrimental – it’s hard to grow dividends per share when new shares are regularly being created.
Overall, we like to see the dividend staying consistent, and we think APA might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, APA has 3 warning signs (and 1 which is potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
