VAALCO Energy (NYSE:EGY) Has Announced A Dividend Of $0.0625

The board of VAALCO Energy, Inc. (NYSE:EGY) has announced that it will pay a dividend on the 20th of September, with investors receiving $0.0625 per share. This means that the annual payment will be 3.9% of the current stock price, which is in line with the average for the industry.

See our latest analysis for VAALCO Energy

VAALCO Energy's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, VAALCO Energy's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 11.0% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 34%, which is definitely feasible to continue.

VAALCO Energy Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the annual payment back then was $0.13, compared to the most recent full-year payment of $0.25. This implies that the company grew its distributions at a yearly rate of about 24% over that duration. VAALCO Energy 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.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. VAALCO Energy's earnings per share has shrunk at 11% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. For example, we've picked out 1 warning sign for VAALCO Energy that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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