Tamarack Valley Energy (TSE:TVE) Will Pay A Dividend Of CA$0.0125

Tamarack Valley Energy Ltd.'s (TSE:TVE) investors are due to receive a payment of CA$0.0125 per share on 15th of December. This means the dividend yield will be fairly typical at 4.3%.

See our latest analysis for Tamarack Valley Energy

Tamarack Valley Energy's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Tamarack Valley Energy was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 18%, which is in a comfortable range for us.

Tamarack Valley Energy Doesn't Have A Long Payment History

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. Since 2021, the dividend has gone from CA$0.0996 total annually to CA$0.15. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Tamarack Valley Energy's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Tamarack Valley Energy has seen EPS rising for the last five years, at 39% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Tamarack Valley Energy hasn't been doing.

Tamarack Valley Energy's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tamarack Valley Energy's payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've identified 4 warning signs for Tamarack Valley Energy (3 are a bit unpleasant!) that you should be aware of before investing. Is Tamarack Valley 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.