Topaz Energy's (TSE:TPZ) Dividend Will Be Increased To CA$0.33

Topaz Energy Corp. (TSE:TPZ) will increase its dividend from last year's comparable payment on the 27th of September to CA$0.33. The payment will take the dividend yield to 5.3%, which is in line with the average for the industry.

See our latest analysis for Topaz Energy

Topaz Energy Is Paying Out More Than It Is Earning

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS is forecast to expand by 91.9%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Topaz Energy Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from an annual total of CA$0.80 in 2021 to the most recent total annual payment of CA$1.32. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Topaz Energy has been growing its earnings per share at 50% a year over the past five years. While EPS is growing rapidly, Topaz Energy paid out a very high 336% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Topaz Energy's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. For instance, we've picked out 1 warning sign for Topaz Energy that investors should take into consideration. Is Topaz Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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