Tourmaline Oil (TSE:TOU) Has Announced A Dividend Of CA$0.33

The board of Tourmaline Oil Corp. (TSE:TOU) has announced that it will pay a dividend of CA$0.33 per share on the 27th of September. The payment will take the dividend yield to 6.2%, which is in line with the average for the industry.

See our latest analysis for Tourmaline Oil

Tourmaline Oil's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Tourmaline Oil was paying a whopping 118% as a dividend, but this only made up 27% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 107.3% over the next year. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

Tourmaline Oil's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the annual payment back then was CA$0.32, compared to the most recent full-year payment of CA$3.78. This means that it has been growing its distributions at 51% per annum over that time. Tourmaline Oil has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Tourmaline Oil has grown earnings per share at 18% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Tourmaline Oil's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Tourmaline Oil's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 3 warning signs for Tourmaline Oil that investors need to be conscious of moving forward. 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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