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Should You Buy Tamarack Valley Energy Ltd. (TSE:TVE) For Its Upcoming Dividend?

·4 min read

Readers hoping to buy Tamarack Valley Energy Ltd. (TSE:TVE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Tamarack Valley Energy's shares before the 28th of September in order to receive the dividend, which the company will pay on the 14th of October.

The company's next dividend payment will be CA$0.01 per share, on the back of last year when the company paid a total of CA$0.12 to shareholders. Based on the last year's worth of payments, Tamarack Valley Energy has a trailing yield of 3.1% on the current stock price of CA$3.89. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Tamarack Valley Energy has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Tamarack Valley Energy

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tamarack Valley Energy has a low and conservative payout ratio of just 6.5% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Tamarack Valley Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Tamarack Valley Energy's earnings per share have risen 20% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Unfortunately Tamarack Valley Energy has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Should investors buy Tamarack Valley Energy for the upcoming dividend? Tamarack Valley Energy has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Tamarack Valley Energy, and we would prioritise taking a closer look at it.

While it's tempting to invest in Tamarack Valley Energy for the dividends alone, you should always be mindful of the risks involved. For example, we've found 3 warning signs for Tamarack Valley Energy that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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