PrairieSky Royalty (TSE: PSK) to pay larger dividend than last year at C $ 0.09
The advice of PrairieSky Royalty Ltd. (TSE: PSK) announced that it will increase its dividend on October 15 to C $ 0.09. Although the dividend is now higher, the yield is only 2.1%, which is lower than the industry average.
Check out our latest review for PrairieSky Royalty
PrairieSky Royalty payment has strong revenue coverage
Even a low dividend yield can be attractive if it lasts for years. Prior to this announcement, PrairieSky Royalty paid 81% of profits, but a relatively small 66% of free cash flow. This leaves a lot of money to reinvest in the business.
Going forward, earnings per share are expected to increase by 54.8% over the next year. Assuming the dividend will continue according to recent trends, we think the payout ratio could be 47% which would be comfortable enough to push the dividend forward.
PrairieSky Royalty does not have a long payment history
It’s nice to see that PrairieSky Royalty has been paying a dividend for several years now, but it has been reduced at least once during that time. This makes us cautious about the consistency of payment over a full business cycle. The dividend went from C $ 1.27 in 2014 to the last annual payment of C $ 0.36. The dividend has fallen by 72% over this period. Falling dividends are usually not what we are looking for, as they may indicate that the business is facing some challenges.
PrairieSky Royalty May Struggle to Increase Dividend
Since the track record hasn’t been stellar, we really want to see earnings per share increase over time. We are encouraged to see that PrairieSky Royalty has increased its earnings per share by 27% per year over the past five years. Earnings per share are growing well, but the company pays out most of its earnings in the form of dividends. It could be sustainable, but we wonder why PrairieSky Royalty is not keeping these profits and reinvesting them in growth.
Our thoughts on the PrairieSky Royalty dividend
Overall, we still like to see the dividend go up, but we don’t think PrairieSky Royalty will do a good, lucrative stock. The company generates a lot of cash, which could hold the dividend for a while, but the track record is not great. Overall, we don’t think this company has the makings of a good income stock.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. Meanwhile, despite the importance of dividend payments, they aren’t the only factors our readers should be aware of when valuing a business. As an example, we have identified 1 warning sign for PrairieSky Royalty that you need to know before you invest. If you are a dividend investor, you can also view our curated list of high performing dividend stocks.
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