Gibson Energy's (TSE:GEI) Shareholders Will Receive A Bigger Dividend Than Last Year

Gibson Energy Inc. (TSE:GEI) has announced that it will be increasing its dividend on the 14th of April to CA$0.37. This takes the dividend yield to 6.0%, which shareholders will be pleased with.

Check out our latest analysis for Gibson Energy

Gibson Energy Doesn't Earn Enough To Cover Its Payments

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. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 6.3%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 137%, 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 2012, and the most recent fiscal year payment was CA$1.48. This implies that the company grew its distributions at a yearly rate of about 4.4% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Gibson Energy's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Gibson Energy has been growing its earnings per share at 55% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Gibson Energy's payments are rock solid. 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. We would probably look elsewhere for an income investment.

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 picked out 2 warning signs for Gibson Energy that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.