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

Tethys Oil AB (publ) (STO:TETY) has announced that it will pay a dividend of kr2.00 per share on the 25th of May. This means the annual payment will be 2.3% 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. Tethys Oil was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Earnings per share is forecast to rise by 180.7% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 156%, which is a bit high and could start applying pressure to the balance sheet.

Tethys Oil's Dividend Has Lacked Consistency

Looking back, Tethys Oil's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The first annual payment during the last 7 years was US$0.11 in 2015, and the most recent fiscal year payment was US$0.70. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Tethys Oil has been growing its earnings per share at 45% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Tethys Oil could prove to be a strong dividend payer.

Our Thoughts On Tethys Oil's Dividend

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 low payout ratio is a redeeming feature, but generally we are not too happy with the payments Tethys Oil has been making. We don't think Tethys Oil is a great stock to add to your portfolio if income is your focus.

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 3 warning signs (and 1 which makes us a bit uncomfortable) 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.