Tourmaline Oil (TSE:TOU) Is Due To Pay A Dividend Of CA$0.33

Tourmaline Oil Corp. (TSE:TOU) will pay a dividend of CA$0.33 on the 27th of September. This takes the annual payment to 6.2% of the current stock price, which is about average for the industry.

View our latest analysis for Tourmaline Oil

Tourmaline Oil's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Tourmaline Oil's dividend was only 27% of earnings, however it was paying out 118% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 106.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 54%, which is in the range that makes us comfortable with the sustainability of the dividend.

Tourmaline Oil's Dividend Has Lacked Consistency

It's comforting to see that Tourmaline Oil has been paying a dividend for a number of years now, however it has been cut at least once in that time. 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 works out to be a compound annual growth rate (CAGR) of approximately 51% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Tourmaline Oil has impressed us by growing EPS at 18% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Tourmaline Oil's prospects of growing its dividend payments in the future.

Our Thoughts On Tourmaline Oil's Dividend

Overall, we always like to see the dividend being raised, but we don't think Tourmaline Oil will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Tourmaline Oil that you should be aware of before investing. Is Tourmaline Oil not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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