High Arctic Energy Services (TSE:HWO) Has Announced A Dividend Of CA$0.005

High Arctic Energy Services Inc's (TSE:HWO) investors are due to receive a payment of CA$0.005 per share on 14th of July. The dividend yield will be 5.2% based on this payment which is still above the industry average.

View our latest analysis for High Arctic Energy Services

High Arctic Energy Services' Distributions May Be Difficult To Sustain

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even though High Arctic Energy Services isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS might fall by 56.1% based on recent performance. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was CA$0.12 in 2013, and the most recent fiscal year payment was CA$0.06. Doing the maths, this is a decline of about 6.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 56% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for High Arctic Energy Services (1 is concerning!) that you should be aware of before investing. 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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