Here's What We Like About Peyto Exploration & Development's (TSE:PEY) Upcoming Dividend
Peyto Exploration & Development Corp. (TSE:PEY) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Peyto Exploration & Development investors that purchase the stock on or after the 28th of February will not receive the dividend, which will be paid on the 15th of March.
The company's next dividend payment will be CA$0.11 per share. Last year, in total, the company distributed CA$1.32 to shareholders. Based on the last year's worth of payments, Peyto Exploration & Development has a trailing yield of 9.5% on the current stock price of CA$13.92. If you buy this business for its dividend, you should have an idea of whether Peyto Exploration & Development's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Peyto Exploration & Development
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Peyto Exploration & Development paid out 63% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Peyto Exploration & Development generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Peyto Exploration & Development'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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Peyto Exploration & Development earnings per share are up 8.9% per annum over the last five years. Decent historical earnings per share growth suggests Peyto Exploration & Development has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
We'd also point out that Peyto Exploration & Development issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Peyto Exploration & Development has lifted its dividend by approximately 3.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Peyto Exploration & Development worth buying for its dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. To summarise, Peyto Exploration & Development looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you want to look further into Peyto Exploration & Development, it's worth knowing the risks this business faces. For example, we've found 2 warning signs for Peyto Exploration & Development that we recommend you consider before investing in the business.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
