In This Article:
Headwater Exploration Inc.'s (TSE:HWX) investors are due to receive a payment of CA$0.11 per share on 15th of July. This means the annual payment is 7.0% of the current stock price, which is above the average for the industry.
Headwater Exploration's Payment Could Potentially Have Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Headwater Exploration was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 94% indicates it is more focused on returning cash to shareholders than growing the business.
Looking forward, earnings per share is forecast to fall by 39.1% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 82% in the next 12 months, which is on the higher end of the range we would say is sustainable.
Check out our latest analysis for Headwater Exploration
Headwater Exploration Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2022, the dividend has gone from CA$0.40 total annually to CA$0.44. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Headwater Exploration has grown earnings per share at 44% per year over the past five years. Headwater Exploration is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Headwater Exploration is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Headwater Exploration is a great stock to add to your portfolio if income is your focus.