Epsilon Energy's (NASDAQ:EPSN) Dividend Will Be $0.0625

The board of Epsilon Energy Ltd. (NASDAQ:EPSN) has announced that it will pay a dividend of $0.0625 per share on the 31st of December. This means the dividend yield will be fairly typical at 5.2%.

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Epsilon Energy's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Epsilon Energy's dividend made up quite a large proportion of earnings but only 61% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share could rise by 33.4% over the next year if things go the same way as they have for the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 89%, which is on the higher side, but certainly still feasible.

View our latest analysis for Epsilon Energy

Epsilon Energy Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. There hasn't been much of a change in the dividend over the last 4 years. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Epsilon Energy Might Find It Hard To Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Epsilon Energy has impressed us by growing EPS at 33% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Epsilon Energy hasn't been doing.

An additional note is that the company has been raising capital by issuing stock equal to 11% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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 is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 2 warning signs for Epsilon Energy (of which 1 can't be ignored!) you should know about. Is Epsilon Energy 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.