Gibson Energy's (TSE:GEI) Dividend Will Be Increased To CA$0.41
Gibson Energy Inc. (TSE:GEI) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of April to CA$0.41. This makes the dividend yield 7.4%, which is above the industry average.
Check out our latest analysis for Gibson Energy
Gibson Energy Doesn't Earn Enough To Cover Its Payments
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Gibson Energy's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
The next 12 months is set to see EPS grow by 14.4%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 107% over the next year.
Gibson Energy Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was CA$1.10, compared to the most recent full-year payment of CA$1.64. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Gibson Energy's Dividend Might Lack Growth
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Gibson Energy has been growing its earnings per share at 19% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.
An additional note is that the company has been raising capital by issuing stock equal to 13% of shares outstanding in the last 12 months. 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.
Our Thoughts On Gibson Energy's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Gibson Energy that investors need to be conscious of moving forward. Is Gibson Energy not quite the opportunity you were looking for? Why not check out our selection of top 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.
