Tamarack Valley Energy Ltd. (TSE:TVE) has announced that it will pay a dividend of CA$0.0125 per share on the 15th of February. This means the dividend yield will be fairly typical at 5.1%.

Check out our latest analysis for Tamarack Valley Energy

Tamarack Valley Energy's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.

Over the next year, EPS is forecast to expand by 103.2%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 47% which would be quite comfortable going to take the dividend forward. TSX:TVE Historic Dividend January 19th 2024

Tamarack Valley Energy Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2022, the dividend has gone from CA$0.0996 total annually to CA$0.15. This means that it has been growing its distributions at 23% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Tamarack Valley Energy's Dividend Might Lack Growth

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Tamarack Valley Energy has grown earnings per share at 39% per year over the past five years. However, Tamarack Valley Energy isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Tamarack Valley Energy's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Tamarack Valley Energy has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Tamarack Valley Energy (of which 3 are a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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