PrairieSky Royalty (TSE:PSK) Has Announced That It Will Be Increasing Its Dividend To CA$0.12

PrairieSky Royalty Ltd. (TSE:PSK) has announced that it will be increasing its dividend on the 14th of April to CA$0.12. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.

View our latest analysis for PrairieSky Royalty

PrairieSky Royalty's Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, PrairieSky Royalty's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to fall by 7.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 60%, which is comfortable for the company to continue in the future.

PrairieSky Royalty Is Still Building Its Track Record

It's nice to see that PrairieSky Royalty has been paying a dividend for a number of years now, however it has been cut at least once in that time. This isn't what income investors are looking for, as cuts in the past can be a good indicator that the company might cut in the future. The first annual payment during the last 8 years was CA$1.27 in 2014, and the most recent fiscal year payment was CA$0.48. The dividend has fallen 62% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see PrairieSky Royalty has been growing its earnings per share at 43% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think PrairieSky Royalty's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think PrairieSky Royalty is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for PrairieSky Royalty (2 shouldn't be ignored!) that you should be aware of before investing. Is PrairieSky Royalty 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.