Why Buying Gibson Energy Inc (TSE:GEI) For Its 7.50% Dividend Could Be A Mistake

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past 7 years Gibson Energy Inc (TSE:GEI) has returned an average of 6.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Gibson Energy in more detail. Check out our latest analysis for Gibson Energy

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

  • Is its annual yield among the top 25% of dividend-paying companies?
  • Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
  • Has dividend per share risen in the past couple of years?
  • Can it afford to pay the current rate of dividends from its earnings?
  • Will the company be able to keep paying dividend based on the future earnings growth?

TSX:GEI Historical Dividend Yield June 25th 18
TSX:GEI Historical Dividend Yield June 25th 18

How well does Gibson Energy fit our criteria?

The current payout ratio for GEI is negative, which means that it is loss-making, and paying its dividend from its retained earnings.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Gibson Energy as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Gibson Energy generates a yield of 7.50%, which is high for Oil and Gas stocks.

Next Steps:

After digging a little deeper into Gibson Energy’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three essential factors you should further research:

  1. Future Outlook: What are well-informed industry analysts predicting for GEI’s future growth? Take a look at our free research report of analyst consensus for GEI’s outlook.
  2. Valuation: What is GEI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GEI is currently mispriced by the market.
  3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.