Permian Resources (NYSE:PR) Has Announced That It Will Be Increasing Its Dividend To $0.20

Permian Resources Corporation's (NYSE:PR) dividend will be increasing from last year's payment of the same period to $0.20 on 29th of May. The payment will take the dividend yield to 3.6%, which is in line with the average for the industry.

See our latest analysis for Permian Resources

Permian Resources' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Permian Resources was paying only paying out a fraction of earnings, but the payment was a massive 108% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 24.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.

Permian Resources 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. Since 2022, the annual payment back then was $0.20, compared to the most recent full-year payment of $0.60. This means that it has been growing its distributions at 73% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Permian Resources has grown earnings per share at 13% per year over the past five years. Permian Resources definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We should note that Permian Resources has issued stock equal to 38% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Permian Resources will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 5 warning signs for Permian Resources that investors should take into consideration. 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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