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The board of Parex Resources Inc. (TSE:PXT) has announced that it will pay a dividend of $0.385 per share on the 16th of September. This takes the dividend yield to 8.9%, which shareholders will be pleased with.
View our latest analysis for Parex Resources
Parex Resources' Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, Parex Resources' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 1.3% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 49%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Parex Resources Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 3 years was $0.39 in 2021, and the most recent fiscal year payment was $1.11. This works out to be a compound annual growth rate (CAGR) of approximately 42% a year over that time. Parex Resources has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
Parex Resources Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Parex Resources has impressed us by growing EPS at 7.9% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Our Thoughts On Parex Resources' Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Parex Resources you should be aware of, and 1 of them is a bit unpleasant. Is Parex Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.