Birchcliff Energy (TSE:BIR) Is Paying Out Less In Dividends Than Last Year
Birchcliff Energy Ltd. (TSE:BIR) is reducing its dividend from last year's comparable payment to CA$0.10 on the 28th of March. This means the annual payment is 7.2% of the current stock price, which is above the average for the industry.
View our latest analysis for Birchcliff Energy
Birchcliff Energy's Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 195% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Birchcliff Energy's Dividend Has Lacked Consistency
Birchcliff Energy has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the annual payment back then was CA$0.10, compared to the most recent full-year payment of CA$0.40. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Dividend Growth Could Be Constrained
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Birchcliff Energy has seen EPS rising for the last five years, at 10% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
Birchcliff Energy's Dividend Doesn't Look Sustainable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. Strong earnings growth means Birchcliff Energy has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Birchcliff Energy (of which 1 makes us a bit uncomfortable!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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