Cardinal Energy (TSE:CJ) Is Paying Out A Dividend Of CA$0.06

Cardinal Energy Ltd. (TSE:CJ) has announced that it will pay a dividend of CA$0.06 per share on the 16th of October. This means the annual payment is 9.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Cardinal Energy

Cardinal Energy Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Cardinal Energy's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 86.9%. If the dividend continues along recent trends, we estimate the payout ratio could reach over 200%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of CA$0.65 in 2013 to the most recent total annual payment of CA$0.72. This means that it has been growing its distributions at 1.0% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Cardinal Energy has grown earnings per share at 37% per year over the past five years. Cardinal Energy is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Cardinal Energy Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think Cardinal Energy might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 2 warning signs for Cardinal Energy that investors need to be conscious of moving forward. Is Cardinal Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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