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

Peyto Exploration & Development Corp.'s (TSE:PEY) investors are due to receive a payment of CA$0.11 per share on 15th of September. The dividend yield will be 7.1% based on this payment which is still above the industry average.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Peyto Exploration & Development's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Peyto Exploration & Development's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 96% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next year is set to see EPS grow by 79.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

View our latest analysis for Peyto Exploration & Development

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from CA$1.20 total annually to CA$1.32. Dividend payments have grown at less than 1% a year over this period. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Peyto Exploration & Development's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Peyto Exploration & Development has impressed us by growing EPS 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

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Peyto Exploration & Development's payments, as there could be some issues with sustaining them into the future. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. 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 3 warning signs for Peyto Exploration & Development that you should be aware of before investing. Is Peyto Exploration & Development not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.