Gibson Energy Inc. (TSE:GEI) will pay a dividend of CA$0.35 on the 15th of October. This means the annual payment is 6.0% of the current stock price, which is above the average for the industry.
Gibson Energy Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
Earnings per share is forecast to rise by 57.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 138%, which probably can't continue putting some pressure on the balance sheet.
Gibson Energy Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from CA$0.96 in 2011 to the most recent annual payment of CA$1.40. This works out to be a compound annual growth rate (CAGR) of approximately 3.8% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Gibson Energy's Dividend Might Lack Growth
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Gibson Energy has grown earnings per share at 69% per year over the past five years. EPS has been growing well, but Gibson Energy has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Gibson Energy's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Gibson Energy (2 are a bit concerning!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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