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

Tamarack Valley Energy Ltd. (TSE:TVE) will pay a dividend of CA$0.0125 on the 15th of August. The dividend yield is 3.9% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for Tamarack Valley Energy

Tamarack Valley Energy's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Tamarack Valley Energy's dividend was higher than its profits, but the free cash flows quite comfortably covered it. 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.

Over the next year, EPS is forecast to expand by 87.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 74% which would be quite comfortable going to take the dividend forward.

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 means that it has been growing its distributions at 15% per annum over that time. 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's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though Tamarack Valley Energy's EPS has declined at around 4.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

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 the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 4 warning signs for Tamarack Valley Energy that investors need to be conscious of moving forward. 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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