Headwater Exploration (TSE:HWX) Will Pay A Dividend Of CA$0.11

The board of Headwater Exploration Inc. (TSE:HWX) has announced that it will pay a dividend of CA$0.11 per share on the 15th of January. This payment means that the dividend yield will be 4.7%, which is around the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Headwater Exploration's stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Headwater Exploration's Future Dividends May Potentially Be At Risk

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last dividend, Headwater Exploration is earning enough to cover the payment, but then it makes up 151% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to fall by 47.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 115%, which could put the dividend under pressure if earnings don't start to improve.

View our latest analysis for Headwater Exploration

Headwater Exploration Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. 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 means that it has been growing its distributions at 3.2% per annum over that time. Headwater Exploration hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Headwater Exploration has grown earnings per share at 33% per year over the past five years. Headwater Exploration is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Headwater Exploration has 2 warning signs (and 1 which is concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.