How Does PrairieSky Royalty Ltd (TSE:PSK) Fare As A Dividend Stock?

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Over the past 4 years, PrairieSky Royalty Ltd (TSE:PSK) has returned an average of 3.00% per year to shareholders in terms of dividend yield. Let's dig deeper into whether PrairieSky Royalty should have a place in your portfolio. View out our latest analysis for PrairieSky Royalty

5 questions to ask before buying a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it paying an annual yield above 75% of dividend payers?
• Has it paid dividend every year without dramatically reducing payout in the past?
• Has it increased its dividend per share amount over the past?
• Is is able to pay the current rate of dividends from its earnings?
• Will it have the ability to keep paying its dividends going forward?

How does PrairieSky Royalty fare?

The company currently pays out 148.68% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a higher payout ratio of 179.78%, leading to a dividend yield of 3.11%. However, EPS is forecasted to fall to CA$0.43 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. The reality is that it is too early to consider PrairieSky Royalty as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, PrairieSky Royalty has a yield of 3.10%, which is on the low-side for Oil and Gas stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in PrairieSky Royalty for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I've compiled three important factors you should look at:

1. Valuation: What is PSK worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PSK is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on PrairieSky Royalty’s board and the CEO’s back ground.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.