Birchcliff Energy's (TSE:BIR) Dividend Will Be Reduced To CA$0.10

Birchcliff Energy Ltd.'s (TSE:BIR) dividend is being reduced from last year's payment covering the same period to CA$0.10 on the 28th of March. The yield is still above the industry average at 7.4%.

Check out our latest analysis for Birchcliff Energy

Birchcliff Energy's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 67%, which is in a comfortable range for us.

Birchcliff Energy's Dividend Has Lacked Consistency

Birchcliff Energy has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2017, the dividend has gone from CA$0.10 total annually to CA$0.40. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year 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.

Birchcliff Energy's Dividend Might Lack Growth

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Birchcliff Energy has been growing its earnings per share at 10% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Birchcliff Energy's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Birchcliff Energy you should be aware of, and 1 of them is concerning. Is Birchcliff Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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