Peyto Exploration & Development (TSE:PEY) Is Due To Pay A Dividend Of CA$0.11

The board of Peyto Exploration & Development Corp. (TSE:PEY) has announced that it will pay a dividend of CA$0.11 per share on the 15th of March. Based on this payment, the dividend yield on the company’s stock will be 9.8%, which is an attractive boost to shareholder returns.

See our latest analysis for Peyto Exploration & Development

Peyto Exploration & Development’s Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 102% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 9.2% over the next year. If the dividend continues on this path, the payout ratio could be 66% by next year, which we think can be pretty sustainable going forward.

TSX:PEY Historic Dividend February 19th 2024

Dividend Volatility

Although the company has a long dividend history, it has been cut 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 implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. 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 Looks Likely To Grow

With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Peyto Exploration & Development has seen EPS rising for the last five years, at 11% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

We should note that Peyto Exploration & Development has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental – it’s hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Peyto Exploration & Development’s Dividend

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we’ve picked out 2 warning signs for Peyto Exploration & Development that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Valuation is complex, but we’re helping make it simple.

Find out whether Peyto Exploration & Development is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

You may also like...