Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Tamarack Valley Energy Ltd. (TSE:TVE) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Tamarack Valley Energy’s shares before the 31st of October to receive the dividend, which will be paid on the 15th of November.
The company’s next dividend payment will be CA$0.0125 per share. Last year, in total, the company distributed CA$0.15 to shareholders. Calculating the last year’s worth of payments shows that Tamarack Valley Energy has a trailing yield of 3.8% on the current share price of CA$4.00. If you buy this business for its dividend, you should have an idea of whether Tamarack Valley Energy’s dividend is reliable and sustainable. So we need to investigate whether Tamarack Valley Energy can afford its dividend, and if the dividend could grow.
See our latest analysis for Tamarack Valley Energy
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Tamarack Valley Energy is paying out an acceptable 65% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Tamarack Valley Energy generated enough free cash flow to afford its dividend. What’s good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.
It’s positive to see that Tamarack Valley Energy’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
historic-dividend
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Tamarack Valley Energy earnings per share are up 7.3% per annum over the last five years. Decent historical earnings per share growth suggests Tamarack Valley Energy has been effectively growing value for shareholders. However, it’s now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we’d take this as a tacit signal that the company’s growth prospects are slowing.
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