Vermilion Energy (TSE:VET) Has Announced That It Will Be Increasing Its Dividend To CA$0.12

Vermilion Energy Inc. (TSE:VET) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of April to CA$0.12. Although the dividend is now higher, the yield is only 3.2%, which is below the industry average.

Check out our latest analysis for Vermilion Energy

Vermilion Energy's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Vermilion Energy is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS is forecast to expand by 157.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was CA$2.40, compared to the most recent full-year payment of CA$0.48. This works out to a decline of approximately 80% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Vermilion Energy has impressed us by growing EPS at 34% per year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Vermilion Energy's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Vermilion Energy that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.