Topaz Energy's (TSE:TPZ) Shareholders Will Receive A Bigger Dividend Than Last Year

Topaz Energy Corp.'s (TSE:TPZ) dividend will be increasing from last year's payment of the same period to CA$0.32 on 28th of March. This takes the annual payment to 5.9% of the current stock price, which is about average for the industry.

Check out our latest analysis for Topaz Energy

Topaz Energy Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Topaz Energy's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 60.7% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

Topaz Energy Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2021, the dividend has gone from CA$0.80 total annually to CA$1.24. This works out to be a compound annual growth rate (CAGR) of approximately 16% 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.

Topaz Energy's Dividend Might Lack Growth

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 46% a year over the past five years. EPS has been growing well, but Topaz Energy has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Topaz Energy will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Topaz Energy 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs 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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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.