Tamarack Valley Energy (TSE:TVE) Has Announced A Dividend Of CA$0.0125

The board of Tamarack Valley Energy Ltd. (TSE:TVE) has announced that it will pay a dividend on the 13th of October, with investors receiving CA$0.0125 per share. This payment means the dividend yield will be 3.9%, which is below the average for the industry.

View our latest analysis for Tamarack Valley Energy

Tamarack Valley Energy's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Tamarack Valley Energy is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 155.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 16%, which is in the range that makes us comfortable with the sustainability of the dividend.

Tamarack Valley Energy Is Still Building Its Track Record

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 annual payment back then was CA$0.0996, compared to the most recent full-year payment of CA$0.15. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. Tamarack Valley Energy has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Tamarack Valley Energy has seen EPS rising for the last five years, at 36% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

An additional note is that the company has been raising capital by issuing stock equal to 27% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Tamarack Valley Energy is earning enough to cover the payments, the cash flows are lacking. We don't think Tamarack Valley Energy is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Tamarack Valley Energy has 5 warning signs (and 1 which can't be ignored) we think you should know about. 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.