Tamarack Valley Energy Ltd. (TSE:TVE) Pays A CA$0.0125 Dividend In Just Four Days

Tamarack Valley Energy Ltd. (TSE:TVE) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Tamarack Valley Energy's shares before the 27th of September in order to be eligible for the dividend, which will be paid on the 15th of October.

The company's upcoming dividend is CA$0.0125 a share, following on from the last 12 months, when the company distributed a total of CA$0.15 per share to shareholders. Based on the last year's worth of payments, Tamarack Valley Energy stock has a trailing yield of around 3.6% on the current share price of CA$4.20. If you buy this business for its dividend, you should have an idea of whether Tamarack Valley Energy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Tamarack Valley Energy

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tamarack Valley Energy paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 24% of its free cash flow last year.

It's positive to see that Tamarack Valley Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Tamarack Valley Energy, with earnings per share up 6.9% on average over the last five years. Decent historical earnings per share growth suggests Tamarack Valley Energy has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last three years, Tamarack Valley Energy has lifted its dividend by approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Tamarack Valley Energy worth buying for its dividend? While earnings per share growth has been modest, Tamarack Valley Energy's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, it's hard to get excited about Tamarack Valley Energy from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 4 warning signs for Tamarack Valley Energy that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.