Tourmaline Oil's (TSE:TOU) Dividend Will Be CA$0.32

The board of Tourmaline Oil Corp. (TSE:TOU) has announced that it will pay a dividend on the 28th of June, with investors receiving CA$0.32 per share. This will take the dividend yield to an attractive 7.7%, providing a nice boost to shareholder returns.

Check out our latest analysis for Tourmaline Oil

Tourmaline Oil's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Tourmaline Oil was paying a whopping 125% as a dividend, but this only made up 22% 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.

The next year is set to see EPS grow by 66.7%. If the dividend continues on this path, the payout ratio could be 63% by next year, which we think can be pretty sustainable going forward.

Tourmaline Oil's Dividend Has Lacked Consistency

Looking back, Tourmaline Oil's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of CA$0.32 in 2018 to the most recent total annual payment of CA$5.20. This works out to be a compound annual growth rate (CAGR) of approximately 59% a year 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. Tourmaline Oil has seen EPS rising for the last five years, at 30% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Tourmaline Oil is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Tourmaline Oil that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.