As investors, we’re always on the lookout for stocks that can provide a steady stream of income. And for many, dividend-paying stocks are a key part of that strategy. But what happens when a company that’s been a reliable dividend payer suddenly starts to scale back its payouts? That’s exactly what’s happening with Paramount Resources (TSE:POU), a Calgary-based energy company that’s been a popular choice for dividend investors. According to the latest news from Yahoo Finance, Paramount Resources is paying out less in dividends than it was last year, sparking concerns about the company’s financial health and its ability to sustain its dividend payments in the long term. In this article, we’ll take a closer look at what’s driving this change and what it might mean for investors who have been relying on Paramount Resources for their dividend income.
Paramount Resources (TSE:POU) Is Paying Out Less In Dividends Than Last Year
According to recent announcements, Paramount Resources Ltd. (TSE:POU) will be paying a dividend of CA$0.05 on February 28th, which marks a reduction from last year’s comparable dividend. This change indicates that the company is altering its dividend policy, and investors are likely to be concerned about the implications of this move.
Upon closer examination, it appears that the annual payment will be 5.7% of the current stock price, which is in line with the average for the industry. While this may not seem alarming at first glance, it is essential to consider the long-term sustainability of the dividend payment.
Payment Could Potentially Have Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last dividend, Paramount Resources is earning enough to cover the payment, but then it makes up 774% of cash flows. This suggests that the company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Looking forward, earnings per share is forecast to rise by 1.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which is in the range that makes us comfortable with the sustainability of the dividend.
TSX:POU Historic Dividend
Paramount Resources Doesn’t Have A Long Payment History
The dividend hasn’t seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn’t that long in the grand scheme of things. The dividend has gone from an annual total of CA$0.24 in 2021 to the most recent total annual payment of CA$1.80. This works out to be a compound annual growth rate (CAGR) of approximately 65% a year over that time.
This rapid growth is encouraging, but with such a short payment history, we can’t know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Looks Likely To Grow
The company’s investors will be pleased to have been receiving dividend income for some time. Paramount Resources has seen EPS rising for the last five years, at 46% per annum. The company’s earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Paramount Resources could prove to be a strong dividend payer.
Our Thoughts On Paramount Resources’ Dividend
In summary, dividends being cut isn’t ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock.
Warning Signs To Consider
We think you should be aware of the following issues before making an investment decision:
- Three warning signs (and one potentially serious) have been identified in the company’s financials.
- Investors should exercise caution when considering Paramount Resources as a dividend investment.
High-Yielding Dividend Ideas
Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Unionjournalism 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. Unionjournalism has no position in any stocks mentioned.
About Paramount Resources Ltd.
Paramount Resources Ltd. explores for and develops conventional and unconventional petroleum and natural gas reserves and resources in Canada.
The company holds interests in the Karr and Wapiti Montney properties covering an area of 109,000 net acres located south of the city of Grande Prairie, Alberta; Kaybob North Duvernay development and natural gas producing properties covering an area of 124,000 net acres located in west-central Alberta; and Willesden Green Duvernay development in central Alberta and shale gas producing properties in the Horn River Basin in northeast British Columbia covering an area of 249,000 net acres.
The company was founded in 1976 and is based in Calgary, Canada.
Conclusion
Paramount Resources’ decision to reduce its dividend payout, while understandable in the context of current economic headwinds and industry pressures, raises crucial questions about the company’s future direction. This move signals a shift in priorities, potentially towards reinvesting in growth or bolstering financial reserves amidst volatile oil and gas markets. The implications for investors are clear: a lower dividend stream translates to reduced income, potentially impacting portfolio returns and sentiment. Looking ahead, the longevity of this dividend cut remains to be seen. Will Paramount Resources be able to navigate the challenges of a fluctuating energy landscape while simultaneously satisfying investor expectations for returns? Or will this be the first step in a larger restructuring, aimed at maximizing long-term value creation? The coming quarters will be crucial in determining the efficacy of this strategy and its impact on Paramount Resources’ standing within the energy sector. Only time will tell if this is a tactical maneuver or a sign of deeper, more fundamental shifts in the company’s trajectory.