Headwater Exploration's (TSE:HWX) Dividend Will Be 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 July. This makes the dividend yield 7.1%, which will augment investor returns quite nicely.

Our free stock report includes 2 warning signs investors should be aware of before investing in Headwater Exploration. Read for free now.

Headwater Exploration's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite comfortably covered by Headwater Exploration's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to fall by 39.1%. If recent patterns in the dividend continue, we could see the payout ratio reaching 82% 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 Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The annual payment during the last 3 years was CA$0.40 in 2022, and the most recent fiscal year payment was CA$0.44. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. 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

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 that Headwater Exploration has been growing its earnings per share at 44% 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.

Our Thoughts On Headwater Exploration's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Headwater Exploration has 2 warning signs (and 1 which can't be ignored) we think you should know about. 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.