Granite Ridge Resources (NYSE:GRNT) Is Paying Out A Dividend Of $0.11

Granite Ridge Resources, Inc. (NYSE:GRNT) will pay a dividend of $0.11 on the 13th of September. Based on this payment, the dividend yield on the company's stock will be 7.2%, which is an attractive boost to shareholder returns.

View our latest analysis for Granite Ridge Resources

Granite Ridge Resources' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the dividend made up 102% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Over the next year, EPS is forecast to expand by 15.8%. If the dividend continues along recent trends, we estimate the payout ratio could reach 88%, which is on the higher side, but certainly still feasible.

Granite Ridge Resources Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of $0.32 in 2022 to the most recent total annual payment of $0.44. This means that it has been growing its distributions at 17% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Granite Ridge Resources May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 3.7% a year for the past five years, which isn't massive but still better than seeing them shrink. So the company has struggled to grow its EPS yet it's still paying out 102% of its earnings. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Granite Ridge Resources' payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Granite Ridge Resources you should be aware of, and 1 of them can't be ignored. Is Granite Ridge Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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