Peyto Exploration & Development (TSE:PEY) Is Paying Out A Dividend Of CA$0.11

The board of Peyto Exploration & Development Corp. (TSE:PEY) has announced that it will pay a dividend of CA$0.11 per share on the 15th of December. This payment means that the dividend yield will be 5.9%, which is around the industry average.

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

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Peyto Exploration & Development's was paying out quite a large proportion of earnings and 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Over the next year, EPS is forecast to expand by 43.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.

See our latest analysis for Peyto Exploration & Development

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The payments haven't really changed that much since 10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Peyto Exploration & Development has seen EPS rising for the last five years, at 23% per annum. 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.

Our Thoughts On Peyto Exploration & Development's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Peyto Exploration & Development is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Peyto Exploration & Development that you should be aware of before investing. 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.