South West Pinnacle Exploration (NSE:SOUTHWEST) Will Pay A Dividend Of ₹0.50

South West Pinnacle Exploration Limited (NSE:SOUTHWEST) has announced that it will pay a dividend of ₹0.50 per share on the 27th of October. This means the annual payment will be 0.7% of the current stock price, which is lower than the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that South West Pinnacle Exploration's stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for South West Pinnacle Exploration

South West Pinnacle Exploration's Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. South West Pinnacle Exploration is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS could expand by 1.2% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

South West Pinnacle Exploration Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2020, the annual payment back then was ₹0.50, compared to the most recent full-year payment of ₹1.00. This means that it has been growing its distributions at 19% per annum over that time. South West Pinnacle Exploration 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.

South West Pinnacle Exploration May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, South West Pinnacle Exploration's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, South West Pinnacle Exploration could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about South West Pinnacle Exploration's payments, as there could be some issues with sustaining them into the future. While South West Pinnacle Exploration is earning enough to cover the payments, the cash flows are lacking. We don't think South West Pinnacle Exploration is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, South West Pinnacle Exploration has 4 warning signs (and 2 which are potentially serious) we think you should know about. Is South West Pinnacle Exploration 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.