Yahoo Finance Is It Worth Considering Paramount Resources Ltd. (TSE:POU) For Its Upcoming Dividend?
Readers hoping to buy Paramount Resources Ltd. (TSE:POU) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. This means that investors who purchase Paramount Resources' shares on or after the 14th of February will not receive the dividend, which will be paid on the 28th of February.
The company's next dividend payment will be CA$0.13 per share, and in the last 12 months, the company paid a total of CA$1.20 per share. Calculating the last year's worth of payments shows that Paramount Resources has a trailing yield of 4.9% on the current share price of CA$30.8. If you buy this business for its dividend, you should have an idea of whether Paramount Resources's dividend is reliable and sustainable. So we need to investigate whether Paramount Resources can afford its dividend, and if the dividend could grow.
See our latest analysis for Paramount Resources
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Paramount Resources is paying out just 25% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Paramount Resources paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Paramount Resources's 20% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, two years ago, Paramount Resources has lifted its dividend by approximately 150% a year on average.
To Sum It Up
Has Paramount Resources got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about Paramount Resources from a dividend perspective.
While it's tempting to invest in Paramount Resources for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Paramount Resources that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
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