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 Magnolia Oil & Gas Corporation (NYSE:MGY) is about to go ex-dividend in just two days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Magnolia Oil & Gas' shares on or after the 12th of May, you won't be eligible to receive the dividend, when it is paid on the 1st of June.

The company's upcoming dividend is US$0.165 a share, following on from the last 12 months, when the company distributed a total of US$0.66 per share to shareholders. Based on the last year's worth of payments, Magnolia Oil & Gas has a trailing yield of 2.3% on the current stock price of US$28.15. If you buy this business for its dividend, you should have an idea of whether Magnolia Oil & Gas's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. Magnolia Oil & Gas paid out a comfortable 27% of its profit last year. 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. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Magnolia Oil & Gas's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Magnolia Oil & Gas's earnings are down 4.7% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Magnolia Oil & Gas has delivered 33% dividend growth per year on average over the past five years.

Final Takeaway

Is Magnolia Oil & Gas an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, Magnolia Oil & Gas looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So while Magnolia Oil & Gas looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock.

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.

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.