Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kinetik Holdings Inc. (NYSE:KNTK) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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 Kinetik Holdings' shares before the 3rd of August in order to be eligible for the dividend, which will be paid on the 16th of August.
The company's next dividend payment will be US$0.75 per share. Last year, in total, the company distributed US$3.00 to shareholders. Based on the last year's worth of payments, Kinetik Holdings has a trailing yield of 8.4% on the current stock price of $35.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Kinetik Holdings
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Kinetik Holdings paid out 241% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 16% of its free cash flow last year.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Kinetik Holdings fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend.