Hemisphere Energy Corporation (CVE:HME) has announced that it will pay a dividend of CA$0.025 per share on the 14th of September. This means the annual payment is 8.1% of the current stock price, which is above the average for the industry.
Hemisphere Energy's Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Hemisphere Energy was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 25.7% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 56%, which is comfortable for the company to continue in the future.
Hemisphere Energy Doesn't Have A Long Payment History
It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Hemisphere Energy has grown earnings per share at 72% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
We Really Like Hemisphere Energy's Dividend
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Hemisphere 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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