In This Article:
Tamarack Valley Energy Ltd.'s (TSE:TVE) investors are due to receive a payment of CA$0.0125 per share on 13th of October. This payment means the dividend yield will be 3.9%, which is below the average for the industry.
See our latest analysis for Tamarack Valley Energy
Tamarack Valley Energy's Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. Tamarack Valley Energy is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 155.7%. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.
Tamarack Valley Energy Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2021, the annual payment back then was CA$0.0996, compared to the most recent full-year payment of CA$0.15. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Tamarack Valley Energy 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.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Tamarack Valley Energy has impressed us by growing EPS at 36% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
An additional note is that the company has been raising capital by issuing stock equal to 27% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On Tamarack Valley Energy's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.