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Paramount Resources Ltd. (TSE:POU) has announced that on 28th of February, it will be paying a dividend ofCA$0.05, which a reduction from last year's comparable dividend. This means that the annual payment will be 5.7% of the current stock price, which is in line with the average for the industry.
See our latest analysis for Paramount Resources
Paramount Resources' Payment Could Potentially Have 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 dividend, Paramount Resources is earning enough to cover the payment, but then it makes up 774% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Looking forward, earnings per share is forecast to rise by 1.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which is in the range that makes us comfortable with the sustainability of the dividend.
Paramount Resources Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of CA$0.24 in 2021 to the most recent total annual payment of CA$1.80. This works out to be a compound annual growth rate (CAGR) of approximately 65% a year 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
The company's investors will be pleased to have been receiving dividend income for some time. Paramount Resources has seen EPS rising for the last five years, at 46% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Paramount Resources could prove to be a strong dividend payer.
Our Thoughts On Paramount Resources' Dividend
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Paramount Resources has 3 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.