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Canacol Energy Ltd (TSE: CNE) will pay a dividend of C$0.052 on July 15. Based on this payout, the dividend yield on the company’s stock will be 8.1%, which is an attractive increase in shareholder returns.
See our latest analysis for Canacol Energy
Canacol Energy payment provides strong profit coverage
Impressive dividend yields are good, but that doesn’t matter much if payouts can’t be sustained. Based on the latest dividend, Canacol Energy earns enough to cover the payout, but that’s 104% of cash flow. This indicates that the company is more focused on returning cash flow to shareholders, but it could mean the dividend is exposed to cuts in the future.
Looking ahead, earnings per share are expected to increase 59.3% over the next year. Assuming the dividend continues on recent trends, we think the payout ratio could be 52% by next year, which is in a fairly sustainable range.
Canacol Energy continues to build its balance sheet
In retrospect, the dividend is stable, but the company has not paid a dividend for a very long time, so we cannot be sure that the dividend will remain stable in all economic environments. As of 2019, the first annual payment was $0.14, compared to the last annual payment of $0.16. This implies that the company has increased its distributions at an annual rate of approximately 3.6% over this period. Canacol Energy hasn’t been paying a dividend for a very long time, so we wouldn’t be excited about its record growth just yet.
The dividend should increase
Some investors will be eager to buy some of the company’s stock based on its dividend history. Canacol Energy has seen EPS increase over the past five years, at 23% per year. Canacol Energy clearly has the ability to grow rapidly while continuing to return cash to shareholders, positioning it to become a major dividend payer in the future.
Our thoughts on the Canacol Energy dividend
Overall, it’s good to see a consistent dividend payout, but we believe that over the longer term, the current level of payout may be unsustainable. With no cash flow, it’s hard to see how the company can sustain a dividend payment. Overall, we don’t think this company has the makings of a good income stock.
Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. For example, we encountered 3 warning signs for Canacol Energy you should know, and one of them makes us a little uneasy. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
