Birchcliff Energy (TSE:BIR) Has Announced That It Will Be Increasing Its Dividend To CA$0.20

The board of Birchcliff Energy Ltd. (TSE:BIR) has announced that it will be paying its dividend of CA$0.20 on the 31st of March, an increased payment from last year's comparable dividend. This takes the dividend yield to 9.0%, which shareholders will be pleased with.

See our latest analysis for Birchcliff Energy

Birchcliff Energy Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Birchcliff Energy's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 87.1% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 117%, which could put the dividend under pressure if earnings don't start to improve.

Birchcliff Energy's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the annual payment back then was CA$0.10, compared to the most recent full-year payment of CA$0.80. This works out to be a compound annual growth rate (CAGR) of approximately 41% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Birchcliff Energy has grown earnings per share at 62% 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 Birchcliff Energy's Dividend

Overall, a dividend increase is always good, and we think that Birchcliff Energy is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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 in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Birchcliff Energy that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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