There's A Lot To Like About Peyto Exploration & Development's (TSE:PEY) Upcoming CA$0.05 Dividend
Readers hoping to buy Peyto Exploration & Development Corp. (TSE:PEY) 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Peyto Exploration & Development's shares on or after the 30th of March, you won't be eligible to receive the dividend, when it is paid on the 14th of April.
The company's upcoming dividend is CA$0.05 a share, following on from the last 12 months, when the company distributed a total of CA$0.60 per share to shareholders. Looking at the last 12 months of distributions, Peyto Exploration & Development has a trailing yield of approximately 4.6% on its current stock price of CA$12.94. 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 Peyto Exploration & Development has been able to grow its dividends, or if the dividend might be cut.
See 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 is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.
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 how much of its profit Peyto Exploration & Development paid out over the last 12 months.
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. 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 5.4% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Peyto Exploration & Development's dividend payments per share have declined at 1.8% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Has Peyto Exploration & Development got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Peyto Exploration & Development is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Peyto Exploration & Development is halfway there. Peyto Exploration & Development looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Peyto Exploration & Development looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 5 warning signs for Peyto Exploration & Development (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.
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.
