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

Tamarack Valley Energy Ltd. (TSE:TVE) has announced that it will pay a dividend of CA$0.0125 per share on the 15th of March. This payment means that the dividend yield will be 4.7%, which is around the industry average.

Check out our latest analysis for Tamarack Valley Energy

Tamarack Valley Energy's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. 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.

Over the next year, EPS is forecast to expand by 17.4%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Tamarack Valley 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 annual payment during the last 2 years was CA$0.0996 in 2022, and the most recent fiscal year payment was CA$0.15. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. 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.

Tamarack Valley Energy Might Find It Hard To Grow Its Dividend

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 Tamarack Valley Energy has been growing its earnings per share at 39% a year over the past five years. 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

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means Tamarack Valley Energy has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Tamarack Valley Energy (3 don't sit too well with us!) 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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