Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Veren Inc. (TSE:VRN) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Accordingly, Veren investors that purchase the stock on or after the 13th of December will not receive the dividend, which will be paid on the 2nd of January.

The company's next dividend payment will be CA$0.115 per share. Last year, in total, the company distributed CA$0.46 to shareholders. Based on the last year's worth of payments, Veren stock has a trailing yield of around 6.5% on the current share price of CA$7.05. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Veren has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Veren

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. Veren paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Veren's earnings have been skyrocketing, up 44% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Veren also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Veren's dividend payments per share have declined at 16% per year on average over the past 10 years, which is uninspiring. Veren is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is Veren an attractive dividend stock, or better left on the shelf? We like Veren's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Veren is facing. For example - Veren has 3 warning signs we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.