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The board of Peyto Exploration & Development Corp. (TSE:PEY) has announced that it will pay a dividend on the 13th of December, with investors receiving CA$0.11 per share. The dividend yield will be 8.1% based on this payment which is still above the industry average.
Check out our latest analysis for Peyto Exploration & Development
Peyto Exploration & Development's Future Dividend Projections Appear Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Peyto Exploration & Development's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 124% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
Looking forward, earnings per share is forecast to rise by 104.4% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 41% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of CA$0.96 in 2014 to the most recent total annual payment of CA$1.32. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend Has Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Peyto Exploration & Development has been growing its earnings per share at 9.9% a year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
Peyto Exploration & Development's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.