One Day Left Until Tourmaline Oil Corp. (TSE:TOU) Trades Ex-Dividend

Tourmaline Oil Corp. (TSE:TOU) is about to trade ex-dividend in the next day or two. This means that investors who purchase shares on or after the 17th of March will not receive the dividend, which will be paid on the 31st of March.

Tourmaline Oil's next dividend payment will be CA$0.16 per share, on the back of last year when the company paid a total of CA$0.64 to shareholders. Last year's total dividend payments show that Tourmaline Oil has a trailing yield of 2.5% on the current share price of CA$26.08. If you buy this business for its dividend, you should have an idea of whether Tourmaline Oil's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Tourmaline Oil

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Tourmaline Oil paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out dividends equivalent to 329% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Tourmaline Oil intends to continue funding this dividend, or if it could be forced to cut the payment.

Tourmaline Oil paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Tourmaline Oil's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Tourmaline Oil has grown its earnings rapidly, up 43% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tourmaline Oil has delivered an average of 26% per year annual increase in its dividend, based on the past three years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Tourmaline Oil an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, Tourmaline Oil looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Tourmaline Oil for the dividends alone, you should always be mindful of the risks involved. For example, we've found 5 warning signs for Tourmaline Oil (1 shouldn't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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