PrairieSky Royalty (TSE:PSK) Will Pay A Larger Dividend Than Last Year At CA$0.09

The board of PrairieSky Royalty Ltd. (TSE:PSK) has announced that it will be increasing its dividend on the 15th of October to CA$0.09. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.

Check out our latest analysis for PrairieSky Royalty

PrairieSky Royalty's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before this announcement, PrairieSky Royalty was paying out 81% of earnings, but a comparatively small 66% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 54.8% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 47% which would be quite comfortable going to take the dividend forward.

PrairieSky Royalty Doesn't Have A Long Payment History

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 makes us cautious about the consistency of the payment over a full economic cycle. The dividend has gone from CA$1.27 in 2014 to the most recent annual payment of CA$0.36. The dividend has fallen 72% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

PrairieSky Royalty Might Find It Hard To Grow Its Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that PrairieSky Royalty has grown earnings per share at 27% 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 PrairieSky Royalty is not retaining those earnings to reinvest in growth.

Our Thoughts On PrairieSky Royalty's Dividend

Overall, we always like to see the dividend being raised, but we don't think PrairieSky Royalty will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for PrairieSky Royalty that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.
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