Northern Oil and Gas, Inc. (NYSE:NOG) stock is about to trade ex-dividend in three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Northern Oil and Gas' shares before the 30th of December in order to receive the dividend, which the company will pay on the 31st of January.

The company's next dividend payment will be US$0.42 per share, on the back of last year when the company paid a total of US$1.68 to shareholders. Calculating the last year's worth of payments shows that Northern Oil and Gas has a trailing yield of 4.7% on the current share price of US$36.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Northern Oil and Gas can afford its dividend, and if the dividend could grow.

See our latest analysis for Northern Oil and Gas

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Northern Oil and Gas paid out just 19% 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. Northern Oil and Gas paid out more free cash flow than it generated - 137%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Northern Oil and Gas'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. Were this to happen repeatedly, this would be a risk to Northern Oil and Gas's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Northern Oil and Gas, with earnings per share up 6.8% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Northern Oil and Gas 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. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Northern Oil and Gas has delivered an average of 93% per year annual increase in its dividend, based on the past four years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Northern Oil and Gas an attractive dividend stock, or better left on the shelf? Northern Oil and Gas delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 137% of its cash flow over the last year, which is a mediocre outcome. In summary, it's hard to get excited about Northern Oil and Gas from a dividend perspective.

However if you're still interested in Northern Oil and Gas as a potential investment, you should definitely consider some of the risks involved with Northern Oil and Gas. Our analysis shows 3 warning signs for Northern Oil and Gas that we strongly recommend you have a look at before investing in the company.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.