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The board of Peyto Exploration & Development Corp. (TSE:PEY) has announced that it will pay a dividend on the 15th of April, with investors receiving CA$0.11 per share. Based on this payment, the dividend yield on the company's stock will be 7.6%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Peyto Exploration & Development
Peyto Exploration & Development's Projected Earnings Seem Likely To Cover Future Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Peyto Exploration & Development was paying out quite a large proportion of both earnings and cash flow, with the dividend being 122% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
The next year is set to see EPS grow by 118.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was CA$1.20 in 2015, and the most recent fiscal year payment was CA$1.32. Dividend payments have been growing, but very slowly over the period. 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.
Peyto Exploration & Development's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Peyto Exploration & Development has impressed us by growing EPS at 12% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Peyto Exploration & Development's payments, as there could be some issues with sustaining them into the future. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.