Tethys Oil (STO:TETY) Is Due To Pay A Dividend Of kr2.00

The board of Tethys Oil AB (publ) (STO:TETY) has announced that it will pay a dividend of kr2.00 per share on the 26th of May. The dividend yield is 2.9% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Tethys Oil

Tethys Oil Doesn't Earn Enough To Cover Its Payments

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Tethys Oil was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 80% indicates it is more focused on returning cash to shareholders than growing the business.

EPS is forecast to rise very quickly over the next 12 months. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 128%.

Tethys Oil's Dividend Has Lacked Consistency

Looking back, Tethys Oil's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from US$0.11 in 2015 to the most recent annual payment of US$0.73. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tethys Oil has seen EPS rising for the last five years, at 45% per annum. 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

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tethys Oil's payments, as there could be some issues with sustaining them into the future. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. 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. Just as an example, we've come across 2 warning signs for Tethys Oil you should be aware of, and 1 of them is potentially serious. 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.