Gibson Energy (TSE:GEI) Has Announced A Dividend Of CA$0.35

Gibson Energy Inc. (TSE:GEI) will pay a dividend of CA$0.35 on the 17th of January. This makes the dividend yield 6.2%, which will augment investor returns quite nicely.

Check out our latest analysis for Gibson Energy

Gibson Energy Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

The next 12 months is set to see EPS grow by 34.7%. If the dividend continues on its recent course, the payout ratio in 12 months could be 136%, which is a bit high and could start applying pressure to the balance sheet.

Gibson Energy Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was CA$0.96, compared to the most recent full-year payment of CA$1.40. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Gibson Energy has seen EPS rising for the last five years, at 64% per annum. Although earnings per share is up nicely Gibson Energy is paying out 179% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Gibson Energy's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Gibson Energy you should be aware of, and 2 of them don't sit too well with us. We have also put together a list of global stocks with a solid dividend.

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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.