Paramount Resources (TSE:POU) Will Pay A Dividend Of CA$0.125

Paramount Resources Ltd. (TSE:POU) has announced that it will pay a dividend of CA$0.125 per share on the 29th of December. This payment means that the dividend yield will be 5.9%, which is around the industry average.

View our latest analysis for Paramount Resources

Paramount Resources' Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, based ont he last payment, Paramount Resources was earning enough to cover the dividend pretty comfortably. The business is earning enough to make the dividend feasible, but the cash payout ratio of 81% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

EPS is set to fall by 1.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 59%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Paramount Resources Is Still Building Its Track Record

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. Since 2021, the dividend has gone from CA$0.24 total annually to CA$1.50. This works out to be a compound annual growth rate (CAGR) of approximately 150% 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

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Paramount Resources has grown earnings per share at 68% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Paramount Resources' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Paramount Resources' payments, as there could be some issues with sustaining them into the future. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Paramount Resources is a great stock to add to your portfolio if income is your focus.

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 instance, we've picked out 3 warning signs for Paramount Resources that investors should take into consideration. 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.