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Birchcliff Energy (TSE:BIR) Will Pay A Larger Dividend Than Last Year At CA$0.20

Birchcliff Energy Ltd. (TSE:BIR) will increase its dividend from last year's comparable payment on the 31st of March to CA$0.20. This takes the dividend yield to 9.5%, which shareholders will be pleased with.

Check out our latest analysis for Birchcliff Energy

Birchcliff Energy Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Birchcliff Energy was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 87.1%. If the dividend continues along recent trends, we estimate the payout ratio could reach 117%, which could put the dividend in jeopardy if the company's earnings don't improve.

historic-dividend
historic-dividend

Birchcliff Energy's Dividend Has Lacked Consistency

It's comforting to see that Birchcliff Energy has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the annual payment back then was CA$0.10, compared to the most recent full-year payment of CA$0.80. This means that it has been growing its distributions at 41% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Birchcliff Energy has seen EPS rising for the last five years, at 62% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Birchcliff Energy Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Birchcliff Energy that you should be aware of before investing. Is Birchcliff Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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