Headwater Exploration (TSE:HWX) Is Paying Out A Dividend Of CA$0.11

The board of Headwater Exploration Inc. (TSE:HWX) has announced that it will pay a dividend on the 15th of October, with investors receiving CA$0.11 per share. This means that the annual payment will be 6.1% of the current stock price, which is in line with the average for the industry.

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Headwater Exploration's Projected Earnings Seem Likely To Cover Future Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last dividend, Headwater Exploration is earning enough to cover the payment, but then it makes up 117% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 37.0%. If recent patterns in the dividend continue, we could see the payout ratio reaching 88% in the next 12 months, which is on the higher end of the range we would say is sustainable.

View our latest analysis for Headwater Exploration

Headwater Exploration Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of CA$0.40 in 2022 to the most recent total annual payment of CA$0.44. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Headwater Exploration has been growing its earnings per share at 39% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Headwater Exploration's payments, as there could be some issues with sustaining them into the future. While Headwater Exploration is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Headwater Exploration (1 shouldn't be ignored!) that you should be aware of before investing. Is Headwater Exploration not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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