Gibson Energy Inc. (TSE:GEI) will pay a dividend of CA$0.35 on the 15th of October. This makes the dividend yield 5.9%, which will augment investor returns quite nicely.
Gibson Energy Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 212% of what it was earning. 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 59.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 136%, which probably can't continue putting some pressure on the balance sheet.
Gibson Energy Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was CA$0.96 in 2011, and the most recent fiscal year payment was CA$1.40. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Dividend Growth Could Be Constrained
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Gibson Energy has impressed us by growing EPS at 69% per year over the past five years. While EPS is growing rapidly, Gibson Energy paid out a very high 212% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.
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. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Gibson Energy you should be aware of, and 2 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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