Tethys Oil (STO:TETY) Has Announced A Dividend Of kr2.00

Tethys Oil AB (publ)'s (STO:TETY) investors are due to receive a payment of kr2.00 per share on 25th of May. This means the annual payment will be 2.9% of the current stock price, which is lower than the industry average.

Check out our latest analysis for Tethys Oil

Tethys Oil Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite comfortably covered by Tethys Oil's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to grow rapidly. Assuming the dividend continues along recent trends, we could see the payout ratio reach 143%, which is on the unsustainable side.

Tethys Oil's Dividend Has Lacked Consistency

It's comforting to see that Tethys Oil has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from US$0.11 to US$0.70. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Tethys Oil has been growing its earnings per share at 45% a year over the past five years. Tethys Oil is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Tethys Oil has 2 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.