Public Joint Stock Company Gazprom (MCX:GAZP) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 17th of July, you won’t be eligible to receive this dividend, when it is paid on the 1st of January.
Gazprom’s upcoming dividend is RUруб16.61 a share, following on from the last 12 months, when the company distributed a total of RUруб16.61 per share to shareholders. Last year’s total dividend payments show that Gazprom has a trailing yield of 6.8% on the current share price of RUB245.5. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Gazprom paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Over the last year, it paid out dividends equivalent to 317% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Gazprom is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
While Gazprom’s dividends were covered by the company’s reported profits, cash is somewhat more important, so it’s not great to see that the company didn’t generate enough cash to pay its dividend. Cash is king, as they say, and were Gazprom to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re encouraged by the steady growth at Gazprom, with earnings per share up 8.1% on average over the last five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past 9 years, Gazprom has increased its dividend at approximately 53% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Gazprom worth buying for its dividend? Gazprom delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 317% of its cash flow over the last year, which is a mediocre outcome. Overall, it’s hard to get excited about Gazprom from a dividend perspective.