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Is Berry Petroleum Corporation (NASDAQ: BRY) a good dividend? How would you know? Companies that pay dividends and whose earnings are growing can be very rewarding in the long run. If you are hoping to live off your dividends, it is important that your investments be more rigorous than the average bettor. Regular readers know that we like to apply the same approach to every dividend and we hope that our badysis will be useful to you.
Berry Petroleum has only paid a dividend for about a year. Investors could therefore question its yield of 4.4%. Some simple research can reduce the risk of buying Berry Petroleum for its dividend – read on for more.
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Distribution ratios
Dividends are usually paid from the company's income. If a company pays more than it earns, the dividend could become unsustainable, which is hardly an ideal situation. Comparing dividends to a company's after-tax net income is a simple way of verifying if a dividend is sustainable. In the past year, Berry Petroleum paid 158% of its earnings as dividends. Unless extenuating circumstances, from the point of view of an investor who hopes to own the company for many years, a payout ratio greater than 100% is definitely a concern.
We also check whether the free cash flow generated was sufficient to pay the dividend. Unfortunately, Berry Petroleum pays a dividend, but also announced negative free cash flow last year. Although there may be a good reason for this, it is not ideal from the point of view of dividends. It's nice to see that while Berry Petroleum's dividends are not covered by profits, they are at least affordable from a liquidity point of view. Nevertheless, if the company regularly paid a higher dividend than its profits, we would not be concerned. Extraordinarily, few companies are able to persistently pay a higher dividend than their profits.
Is Berry Petroleum's balance sheet risky?
As Berry Petroleum's dividend is poorly covered by profits, we need to check the balance sheet for signs of financial difficulties. A quick way to check a company's financial position uses these two ratios: net debt divided by EBITDA (earnings before interest, taxes, depreciation and amortization) and net interest coverage. The net debt / EBITDA ratio is a measure of a company's total debt. Net interest coverage measures the ability to meet interest payments on debt. Essentially, we check that a company does not have too much debt and b) that it can afford to pay the interest. With a net debt of 1.54 times earnings before interest, taxes, depreciation and amortization (EBITDA), Berry Petroleum has an acceptable level of debt.
The net interest coverage can be calculated by dividing earnings before interest and taxes (EBIT) by the net interest expense of the company. With an EBIT of 4.39 times its interest expense, interest coverage by Berry Petroleum is starting to look a little thin.
We update our data for Berry Petroleum every 24 hours, so you can always get our latest badysis on its financial health here.
Volatility of dividends
From the point of view of an income investor who wishes to earn dividends for many years, there is no point in buying a stock if his dividend is regularly reduced or he does not have a dividend. is not reliable. With a payment history of less than 2 years, we think it is a little too early to think about living on the income of its dividend. His last annual dividend was $ 0.48 per share, unchanged from his first payment a year ago.
It's good to see at least some growth in dividends. However, with a relatively short dividend distribution history, we would not want to rely too much on this dividend.
Dividend growth potential
The other half of the dividend investment equation evaluates whether earnings per share (EPS) is increasing. Growth in EPS can help maintain or increase the purchasing power of the long-term dividend. Earnings per share are rising very fast, although the company also pays almost all of its earnings as dividends. In general, a company that is growing rapidly while paying most of its profits sees its debt burden increase. We would be aware of any additional risk added by this practice.
We also note that Berry Petroleum has issued a significant number of new shares over the past year. Regularly issuing new shares may be detrimental. It is difficult to generate dividends per share when new shares are regularly created.
Conclusion
To summarize, shareholders should always check that Berry Petroleum's dividends are affordable, that dividend payments are relatively stable and that it has a good chance of increasing its earnings and dividend. We are a little embarrbaded by the fact that Berry Petroleum pays a high percentage of its cash flow and profits. Then the earnings growth was good, but unfortunately the company did not pay dividends as long as we wanted. In summary, Berry Petroleum has a number of shortcomings that we would struggle to overcome. Things might change, but we think that there are probably more attractive alternatives.
Earnings growth generally bodes well for the future value of corporate dividend payments. Check to see if the 5 Berry Petroleum badysts we follow plan for continued growth with our free report on badysts' estimates for the company.
Looking for other high yield dividend ideas? Try our selective list of dividend stocks with a return greater than 3%.
Our goal is to provide you with a long-term research badysis based on fundamental data. Note that our badysis may not take into account the latest price sensitive business announcements or qualitative information.
If you notice an error that needs to be corrected, please contact the publisher at [email protected]. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.
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