Paramount Resources' (TSE:POU) Dividend Will Be CA$0.125

Paramount Resources Ltd.'s (TSE:POU) investors are due to receive a payment of CA$0.125 per share on 29th of February. This means that the annual payment will be 6.1% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Paramount Resources

Paramount Resources' Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Paramount Resources was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

EPS is set to fall by 37.4% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 56%, which is comfortable for the company to continue in the future.

Paramount Resources Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The annual payment during the last 3 years was CA$0.24 in 2021, and the most recent fiscal year payment was CA$1.50. This works out to be a compound annual growth rate (CAGR) of approximately 84% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

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. Paramount Resources has seen EPS rising for the last five years, at 68% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Paramount Resources' 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. This company is not in the top tier of income providing stocks.

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 2 warning signs for Paramount Resources 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.