Crescent Point Energy (TSE:CPG) Is Increasing Its Dividend To CA$0.115
Crescent Point Energy Corp. (TSE:CPG) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of April to CA$0.115. This takes the annual payment to 5.2% of the current stock price, which is about average for the industry.
See our latest analysis for Crescent Point Energy
Crescent Point Energy's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Crescent Point Energy was paying out 81% of earnings, but a comparatively small 34% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to fall by 13.7%. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 29%, which is more comfortable than the current payout ratio.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CA$2.76 in 2014, and the most recent fiscal year payment was CA$0.527. This works out to a decline of approximately 81% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Crescent Point Energy Might Find It Hard To Grow Its Dividend
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Crescent Point Energy has grown earnings per share at 52% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.
We should note that Crescent Point Energy has issued stock equal to 13% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Crescent Point Energy's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Crescent Point Energy is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Crescent Point Energy (1 is a bit unpleasant!) that you should be aware of before investing. 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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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.
