Peyto Exploration & Development (TSE:PEY) Is Due To Pay A Dividend Of CA$0.11

The board of Peyto Exploration & Development Corp. (TSE:PEY) has announced that it will pay a dividend on the 15th of October, with investors receiving CA$0.11 per share. This means the annual payment is 7.2% of the current stock price, which is above the average for the industry.

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Peyto Exploration & Development's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. At the time of the last dividend payment, Peyto Exploration & Development was paying out a very large proportion of what it was earning and 96% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to rise by 79.9% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 43% which brings it into quite a comfortable range.

View our latest analysis for Peyto Exploration & Development

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of CA$1.20 in 2015 to the most recent total annual payment of CA$1.32. Its dividends have grown at less than 1% per annum over this time frame. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Peyto Exploration & Development has grown earnings per share at 29% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Peyto Exploration & Development is not retaining those earnings to reinvest in growth.

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. Strong earnings growth means Peyto Exploration & Development has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Peyto Exploration & Development that investors should know about before committing capital to this stock. 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.