Beach Energy's (ASX:BPT) Upcoming Dividend Will Be Larger Than Last Year's

Beach Energy Limited (ASX:BPT) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of September to A$0.06. The payment will take the dividend yield to 9.7%, which is in line with the average for the industry.

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Beach Energy's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Beach Energy's Could Struggle to Maintain Dividend Payments In The Future

Beach Energy's Future Dividends May Potentially Be At Risk

Solid dividend yields are great, but they only really help us if the payment is sustainable. Despite not being profitable, Beach Energy is paying out most of its free cash flow as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.

Over the next year, EPS is forecast to expand by 134.4%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

View our latest analysis for Beach Energy

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was A$0.03, compared to the most recent full-year payment of A$0.12. This means that it has been growing its distributions at 15% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Beach Energy's earnings per share has shrunk at 42% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Beach Energy's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Beach Energy's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Beach Energy is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 1 warning sign for Beach Energy that investors need to be conscious of moving forward. Is Beach 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.